Slea Pty Ltd v Connective Services Pty Ltd

CORPORATIONS - Minority shareholder instituted proceedings for oppression - Directors exercised power of sale of business to avoid minority shareholder obtaining relief in oppression proceeding - Whether directors breached duty - Whether actions of directors oppressive.

CORPORATIONS - Relief on oppression proceeding - Whether majority or minority should be able to buy the other out - Discussion of authorities.

CORPORATIONS - Pre-emptive rights - Whether shares transferred from a member of the company to a third party, enlivened a right in the holder of the pre-emptive rights to acquire the shares transferred - Construction of pre-emptive rights clause - Right to acquire not enlivened.

Mr M Hodge QC, Ms KE Foley, Mr G Kozminsky and Ms C Mintz

For the first, second and fourth to ninth defendants

Mr M Hodge QC, Ms KE Foley, Mr G Kozminsky and Ms C Mintz

Mr M Hodge QC, Ms KE Foley, Mr G Kozminsky and Ms C Mintz

The business is transferred to Group and Macquarie acquires an interest 8

Mr Tsialtas continues to negotiate the sale of Slea's shares with MFL 19

Discussions regarding a share transfer to Mr Haron 24

Mr Butler's role advising Mr Lees, Murray Lees, and Mr Haron 27

Discussions between Mr Tsialtas and Mr Lees on the purchase of Slea's shares 28

Liberty and the Connective directors meet to discuss the 2009 agreement 30

Further discussions regarding the alleged Haron agreement 34

Discussions regarding the issue of a special class of shares 36

Further discussions on Slea's exit and the issuance of a special class of shares 37

July 2009: Financial pressure strategy (Version 1 and 2 Emails) 39

Mr Haron's response to the version 1 and 2 emails 41

The accommodation agreement between Slea and Minerva (Liberty) 59

Negotiations with Macquarie recommence in April 2013 72

The Connective companies' pre-emptive rights proceeding 79

Application to admit the content of the Murray Lees statement as an admission in both the oppression and derivative proceedings 87

Slea's submissions on the statement's admissibility 89

Slea's authorities on representation as to silence 94

The defendants' submissions on the statement's admissibility 96

Adoption of directors' submissions by other parties 99

Application to use statement of Mr Myers QC as an admission 102

1st instance of oppression (failure to pay dividends) and 2nd instance of oppression (inappropriate retention of dividends) 119

Evidence concerning the alleged Haron agreement 125

Closing submissions on the alleged Haron agreement 135

Consideration and conclusion on the Haron agreement 137

Conduct supporting the existence of a binding agreement 139

Consideration and conclusion on 1st and 2nd instances of oppression 142

3rd instance of oppression (inappropriate payments to directors) and 4th instance of oppression (inappropriate recording of directors' fees as unsecured loans) 143

The financial arrangements underpinning payments to the principals 143

Mr Maloney's changes to the remuneration system 147

Slea's submissions on remuneration of the principals 149

Connective companies' submissions on remuneration 150

Consideration and conclusion on 3rd and 4th instances of oppression 154

5th instance of oppression (failure to finalise a shareholders' agreement) 158

Consideration and conclusion on 5th instance of oppression 161

6th instance of oppression (conduct designed to remove Slea as a shareholder) 163

11th instance of oppression (funding of and participation in litigation) 165

Consideration and conclusion: pre-emptive rights proceeding 171

(i) Participation of the Connective companies in the litigation 185

(ii) Expenditure of the Connective companies in the litigation 186

12th instance of oppression: withholding of financial records 194

Part 3: Restructure and sale (7th and 8th instance of oppression) 215

Transfer of the Connective business to Group and its subsidiaries 221

Limits on the power to sell assets of the company and to issue shares 235

Murray Lees' evidence on the restructure and sale 250

Concealment of the restructure and sale from Slea 252

9th instance of oppression (Group's constitution) 281

Part 4: Misleading or deceptive conduct (10th instance of oppression) 283

The Haron proceeding and Slea's pre-emptive rights proceeding 283

Contractual claim: relevant provisions of the Services and OSN constitutions 288

All parties deed of settlement of 22 October 2013 290

Slea's submissions on the proper construction of the deed 291

Tett v Phoenix Property and Investment Co Ltd (Ch Div, High Court) 302

Tett v Phoenix Property and Investment Co Ltd (Court of Appeal) 305

Conclusion on the nature of the pre-emptive rights 314

Conclusion on the misleading or deceptive conduct claim 321

Part 5: Proposed sale of the Connective business (13th phase of oppression and improper purpose) 325

Relevant background: Initial discussions with AFG 327

Mr Korda's appointment and further discussions with AFG 333

Improper purpose allegation: Findings sought by Slea 342

Finding 1: Interference with relief available in the oppression and derivative proceedings 342

Finding 3: Lack of candour regarding the dealings between Mr Lees and Mr Bailey prior to August 2018 348

Finding 4: No sensible explanation for Mr Korda's appointment to explore a merger or takeover 351

Finding 5: No sensible explanation for why the AFG approach led to a sale process 354

Finding 6: No sensible explanation for when or how the decision to conduct a sale process was made 354

Finding 7: The involvement of Quinn Emanuel in the sale process 356

Finding 8: Slea was not consulted about the sale process 357

Finding 9: The transaction was structured as an asset sale, despite a share sale being more advantageous 358

Finding 10: The sale process progressed, despite the disadvantages associated with an asset sale and the litigation context 360

Finding 11: Mr Lees, Mr Haron, and Mr Maloney approved the approval proceeding 361

Finding 12: That records were not kept or maintained 363

Finding 13: The directors continued with their efforts to achieve a sale regardless of the outcome in the approval proceeding 364

Sale of shares by Millsave and Mr Haron to Slea 371

Relevant legal principles: indemnity and non-party costs 374

Relevant legal principles: Minority buy-out orders 377

Minority buy-out orders in the case law - divergent positions 377

No special inhibition on the court's power to order a minority buy-out 387

Cases where a minority buy-out has been ordered 387

Cases of equal shareholding where the oppressed party buys out the oppressor 393

Slea's submissions on the price at which the shares should be purchased 399

Relevant legal principles: Section 233 discretion 404

Authorities on the general rule concerning majority buy-outs 408

Conclusion on the Court's power to order a minority buy-out 411

1 Slea Pty Ltd (Slea) is a one-third minority shareholder in Connective Services Pty Ltd (Services) and Connective OSN Pty Ltd (OSN) (together the Connective companies). The Connective companies have carried on business as mortgage aggregators (the Connective business). The two-thirds majority shareholders in each of the Connective companies are Millsave Pty Ltd (Millsave) and Mr Mark Haron, who is also a director of the Connective companies. Mr Glenn Lees (Mr Lees) is a director of Millsave and the dominant director of the Connective companies. Mr Sofianos Tsialtas is the sole director of Slea, which acts as trustee of a family trust in favour of Mr Tsialtas and his family. Mr Tsialtas was a director of the Connective companies from their incorporation until he resigned as a director, under pressure from the other directors, in 2008. Slea brings two proceedings: an oppression proceeding (oppression proceeding) and a derivative proceeding (derivative proceeding).

2 In the oppression proceeding, the defendants are the Connective companies, Millsave, Mr Haron and subsidiaries of the Connective companies.

3 In the derivative proceeding, Slea brings proceedings in the names of Services and OSN against Mr Lees (as a director of Services and OSN), Mr Haron (as a director of Services and OSN) Mr Graham Maloney (as a director of Services and OSN), Macquarie Bank Ltd (Macquarie), and Connective Group Pty Ltd (Group) and its subsidiaries, alleging that Mr Lees, Mr Haron and Mr Maloney breached their duties as directors of Services and OSN, and that Macquarie was a knowing participant in their breach of their duties as directors.

4 Regrettably, the relevant events cover the period from 2001 to 2020, a period of 19 years, which explains, in part, why the trial lasted 52 days. The transcript extended to 5,467 pages. Exhibits numbered 508, of which several were folders of documents. This is reflected in the length of the judgment.

5 The major individuals involved in the disputes are Mr Glenn Lees, Mr Haron and Mr Maloney, as directors of the Connective companies, and Mr Tsialtas, as the controller of Slea. At an early stage, Mr Murray Lees, Mr Glenn Lees' brother, also acted in a senior role in the Connective companies. Mr Maloney became a director of the Connective companies in 2012 and was not involved in the earlier relevant events, but features in the later events.

6 In May 2008, Mr Tsialtas was asked to resign as a director of the Connective companies, and did so. Slea alleges that it was the subject of oppressive conduct after Mr Tsialtas resigned as a director.

7 The Connective companies carried on the business of a mortgage aggregator until 2011, when, unbeknown to Slea, the business was restructured (the restructure). In the restructure, the business was transferred from Services and OSN to a subsidiary of Services and OSN; namely, Group, and five of its subsidiaries (who are all defendants in the oppression proceeding and the derivative proceeding) (the Connective Group subsidiaries).

8 After the restructure, and unbeknown to Slea, a 25% interest in Group, and thus the business, was sold to Macquarie. The restructure and sale to Macquarie form part of the alleged oppressive conduct and are also critical parts of the derivative claim.

9 From the period 2003 to 2012, when the restructuring took place, 'the Connective companies' refers only to Services and OSN. After the restructuring, 'the Connective companies' refers to Services, OSN, Group and its subsidiaries unless the contrary is indicated. I refer to Mr Glenn Lees as Mr Lees and Murray Lees as Murray Lees. Murray Lees drops out of the picture around 2011.

10 In the late 1990s, Mr Tsialtas was working in retail banking when he met Murray Lees. Murray Lees was a mortgage broker, with a business called Mortgage Results Pty Ltd (Mortgage Results). Mr Tsialtas met Murray's brother, Glenn Lees (Mr Lees), in about 2000, when Mr Lees went into business with Murray Lees as a mortgage broker.

11 In around 2001, Mr Tsialtas was working at a mortgage aggregator. Individuals wishing to borrow monies on mortgage often use the services of a mortgage broker, who will introduce them to various mortgage lenders. A mortgage aggregator offers a means through which mortgage brokers can access a wide range of mortgage lenders and their various products, which the brokers can then offer to their clients. Mortgage aggregators earn a commission on the monies lent through the use of their service.

12 In 2001, Murray Lees proposed to Mr Tsialtas that they work together in the industry, but Mr Tsialtas declined that invitation as he did not feel ready. In 2003, Mr Tsialtas approached Mr Lees and Murray Lees to ascertain whether they were still interested in going into the mortgage aggregation business together.

13 In 2003, Mr Tsialtas, Mr Lees, and Murray Lees established Services and OSN to conduct the business of a mortgage aggregator, which they called the Connective business. When the Connective business was formed, Mr Tsialtas had experience working for a mortgage aggregator, and Mr Lees and Murray Lees had experience operating a mortgage broking business. In addition, Mr Lees had previously worked as a solicitor at Macpherson Kelley, and had some IT experience.

14 Services and OSN played different roles in the conduct of the Connective business. OSN had agreements with financial institutions and lenders, while Services was the operating entity which conducted the business, including entering into agreements with brokers.

15 The initial shareholders of each of the Connective companies were Mr Lees (66.7%) and Slea as trustee for the Tsialtas Family Trust (33.3%). In 2006, shares held by Mr Lees were transferred to Millsave, a company controlled by Mr Lees. Millsave holds those shares as trustee for the Millsave Family Trust. Millsave now holds a 50% interest in the Connective companies, after transferring 16.67% to Mr Haron in 2013.

16 Although Murray Lees played a significant role in the relevant alleged oppressive events up to and including the restructuring in 2012, acting on an equal basis with Mr Lees, Mr Haron and Mr Tsialtas, he was not appointed as a director of the Connective companies. He also did not hold shares in the Connective companies. He was entitled to some undefined interest in Millsave as beneficiary of a trust. He was not called by the defendants in the oppression proceeding or the derivative proceeding to give evidence and no explanation was provided for his absence. It appears that he fell out with Mr Lees at about the time of Macquarie's entrance into the business.

17 The constitutions of each of Services and OSN contain pre-emptive rights for existing members on the issue of shares (cl 76) and the transfer of shares (cl 77). They each confer a discretion on the directors to refuse to register a transfer of shares for any reason (cl 79). The relevant clauses in each of Services and OSN are the same. The relationship between the founders was not otherwise governed by any formal agreement.

18 The Connective business was immediately successful. Its lender panel, fee structure, and software platform drove its success. Mr Lees, while working at Mortgage Results, had been the driving force behind the coding and implementation of technology and software platforms for brokers and lenders. These software platforms were brought to the Connective business by Mr Lees. Mr Tsialtas, in turn, brought substantial lender and broker contracts to the nascent business, including the ANZ Bank. By early 2006, Connective's success was evidenced when a wholesale lender offered to purchase the business for $4 million.

19 Mr Haron entered the business in 2006, initially as a principal, then becoming a director in 2011. As noted above, Mr Haron now holds 16.67% of the issued shares in Services and OSN. As discussed below, the terms upon which Mr Haron joined the business, and the circumstances in which he acquired his shareholding, are relevant to a claim made in the oppression proceeding.

20 Around February 2006, Mr Tsialtas met Mr Haron at an industry event. At that time, Mr Haron was the CEO of a mortgage aggregator, Finance and System Technology Pty Ltd (FAST). Mr Haron was highly successful at FAST, but was looking to leave FAST's employment. He was unhappy about not having any equity in that business. Mr Tsialtas suggested to Mr Lees and Murray Lees that it would be beneficial to the Connective business for Mr Haron to join Connective. Mr Lees and Murray Lees were open to Mr Haron doing so.

21 Between March and September 2006, Mr Tsialtas, Mr Haron, Mr Lees, and Murray Lees met on several occasions to discuss Mr Haron joining the Connective business and taking equity in the Connective companies.

22 In September 2006, Mr Haron had arranged for Australian Finance Group Ltd (AFG) to fund his equity purchase in the Connective companies, with AFG also taking some equity themselves, at a profit to Mr Haron. However, this arrangement was not acceptable to Mr Tsialtas, Mr Lees, and Murray Lees, who objected strongly to the proposed sale to AFG, and discussions with Mr Haron almost ended.

23 On 28 September 2006, there was a meeting between Mr Haron, Mr Lees, Murray Lees, and Mr Tsialtas at the Knox Shopping Centre. Mr Haron was told that his proposed arrangement with AFG was not acceptable. Mr Haron says that it was agreed in principle at the meeting that he would acquire a 25% stake in the Connective business for a price of $875,000. Mr Haron says that he made it clear that he could not afford to pay that amount at that time, so the discussions included Mr Haron being funded by an investor.

24 A subsequent meeting was arranged on 10 October 2006 between Mr Lees, Murray Lees, Mr Tsialtas, and Mr Haron at the offices of Macpherson Kelley, the solicitors for Connective. At that meeting, agreement was reached that Mr Haron should commence working in the Connective business on the basis that he would become a shareholder. Whether a binding agreement was reached as to how Mr Haron would become a shareholder is a matter of dispute in the oppression proceeding.

25 It is undisputed that the parties discussed Mr Haron acquiring an equal 25% share in the business, with Slea and Mr Haron each holding 25% of the shares in the Connective companies, and with Millsave (representing Mr Lees and Murray Lees) holding 50%, being 25% each for Mr Lees and Murray Lees. However, there is a dispute regarding whether the parties agreed on the means and terms by which Mr Haron would acquire a 25% interest.

26 The main dispute concerns whether it was agreed that Mr Haron would be issued shares, or purchase shares, in each of the Connective companies to give him a 25% interest, and if so, on what payment terms. There seems to be agreement that the price would be $875,000, but no agreement regarding how it was to be paid and secured. As discussed below, it was suggested that whether it was a share issue or a share sale would be decided by either Mr Lees, Murray Lees and Mr Tsialtas, or some combination of them, after they took advice from Macpherson Kelley.

27 Slea submits that what came out of those discussions between Mr Lees, Murray Lees, and Mr Tsialtas was a draft share sale agreement (share sale agreement) from Macpherson Kelley, which contained various terms including reference to payment. However, Slea submits that from 2008 onwards, Mr Lees pressed an agreement with Mr Tsialtas for the transfer of Slea's shares to Mr Haron with no payment terms.

28 In the oppression proceeding, the Connective companies and Millsave pleaded that the agreement reached was for the sale of shares by Slea and Millsave to Mr Haron, not a share issue to Mr Haron by the Connective companies.

29 However, during the trial, Mr Lees, giving evidence on behalf of Millsave, abandoned its pleaded case and alleged that an agreement was reached where Mr Haron would acquire a 25% interest, either by buying shares from Slea and Millsave, or through taking up an issue of shares by the Connective companies; and that it was agreed that Mr Lees, Murray Lees, and Mr Tsialtas would determine by subsequent agreement, and after taking advice, which method it was to be.

30 During the trial, Mr Haron also abandoned his pleaded case and, in evidence, said that whether the means was a share sale or an issue of shares would be determined by Mr Tsialtas and Mr Lees, but not Murray Lees.

31 The Connective companies maintained their pleaded case during the trial. In its final address, Millsave abandoned the case put by Mr Lees in his evidence; namely, that it had been agreed at the meeting that Mr Lees, Murray Lees and Mr Tsialtas would determine the method by which Mr Haron was to acquire his shares in the Connective parties. Instead, Millsave submitted that the agreement reached was that Mr Lees alone would determine whether there would be a share sale or a share issue - a case not supported by any evidence.

32 According to Mr Lees' evidence, a final agreement about Mr Haron's acquisition of a 25% interest in the Connective companies was reached in about May 2007, at another meeting at Macpherson Kelley, when Mr Lees, Murray Lees, and Mr Tsialtas agreed that the agreement with Mr Haron would be met by a share sale from Millsave and Slea to Mr Haron.

33 Mr Tsialtas denies any such agreement was reached. There is no evidence of a written agreement in this matter. Mr Haron was not advised that an agreement had been reached that affected him and his acquisition of shares in the Connective companies.

34 As explained below, I have found that no final agreement was reached between Mr Lees, Murray Lees, Mr Tsialtas, and Mr Haron, or Millsave, Slea and Mr Haron, regarding the method by which Mr Haron would receive shares in the Connective companies.

35 The dispute regarding whether a binding agreement was reached in relation to Mr Haron acquiring shares in the Connective companies led to the proceedings issued in 2011 by Mr Haron against Slea, Millsave, Services, and OSN, known by the parties as the Haron proceeding (Haron proceeding). In the dispute, Mr Haron alleged there was an agreement for Millsave and Slea to sell shares in Services and OSN to Mr Haron. The Haron proceeding was subsequently resolved in October 2013 with a settlement between Mr Haron, Millsave, and Slea, as discussed below. The settlement involved Slea consenting to Mr Haron being transferred shares in the Connective companies being transferred from Millsave to Mr Haron.

36 The dispute as to whether a binding agreement was reached between Millsave, Slea and Mr Haron is relevant to the oppression proceeding, as the alleged failure of Slea to observe the alleged binding agreement is relied on by the Connective parties, Millsave, and Mr Haron to justify some of the conduct that is alleged by Slea to be oppressive, such as the failure to pay dividends to Slea. In particular, the Connective parties, Millsave, and Mr Haron contend that conduct alleged by Slea to be oppressive was not oppressive, as it was conduct engaged in by the Connective parties, Millsave, and Mr Haron to induce Slea to meet its alleged obligations under the agreement with Mr Haron.

The business is transferred to Group and Macquarie acquires an interest

37 Prior to outlining the circumstances attending Mr Tsialtas's departure from the Connective business in 2008, which occurred in the midst of the events outlined above, it is useful to foreshadow two key events that occurred later in the factual narrative. First, in 2011, the Connective business was transferred from Services and OSN to Group and its subsidiaries, without the knowledge or consent of Slea. Group was established as a subsidiary of Services.

38 Second, in 2013, Macquarie acquired 25% of the issued shares in Group for $5 million. Services holds the balance of 75%. Thus, Slea's current effective commercial interest in the Connective business is 25%, Macquarie's interest is 25%, and the remaining 50% interest is held by Millsave and Mr Haron. The whole of the sale price of the shares, less a provision for tax, was immediately distributed to the shareholders of Services and OSN. The restructure and sale to Macquarie are both alleged to constitute acts of oppression. They are also the subject of the derivative proceeding brought by Slea in the name of Services and OSN, which alleges that the directors of each company breached their duties as directors by exercising their powers to restructure and sell shares to Macquarie for an improper purpose.

39 Services and OSN both have pre-emptive rights clauses (the pre-emptive rights provisions) in their respective constitutions. In broad terms, the pre-emptive rights provisions required that, before the transfer of shares, those shares must first be offered to existing shareholders of that class, in proportion to the number of shares of that class already held by that shareholder.

40 The constitutions also provided that the Company could, by resolution passed at a general meeting, authorise the directors to make a particular issue of shares, without having to make the share offer contained in the pre-emptive rights provisions.

41 As Services and OSN each had only two shareholders, Slea and Millsave would both need to agree to the circumvention of the obligation that shares must be offered to Slea and Millsave, in the proportion of their existing holdings, before issuing to a new shareholder.

42 This effectively enabled each of Slea and Millsave to maintain their percentage shareholding in each of the Connective companies, should any further shares be transferred or issued.

43 By establishing Group, the directors of Services and OSN were able to effect the transaction with Macquarie, allowing it to take a 25% commercial interest in the Connective business, and avoid the application of the pre-emptive rights clauses in the constitutions of Services and OSN.

44 In May 2008, Mr Tsialtas was forced to resign as a director and employee of the Connective companies. His resignation resulted from a complaint made by an employee about Mr Tsialtas's conduct when Mr Tsialtas and the employee travelled to South Australia on business. Mr Tsialtas denied the allegations made in the complaint.

45 The Connective companies' solicitors, Macpherson Kelley, carried out an investigation of the complaint and prepared a report for the Connective companies. On receipt of the draft report, Mr Lees informed Macpherson Kelley that he, Murray Lees, and Mr Haron had resolved that Mr Tsialtas should go. The three also considered the transfer of Slea's shares. The final report, dated 7 April 2008, concluded that it was a matter of Mr Tsialtas's word against that of the complainant.

46 On the same day, the four partners met and Mr Tsialtas was shown a copy of the report. Mr Tsialtas asked for a further investigation. He was told, however, that Mr Lees, Mr Haron, and Murray Lees could not work with him and that they wanted Mr Tsialtas to leave the business. Mr Lees explained that he, Murray Lees and Mr Haron were concerned about the reaction of their staff if Mr Tsialtas remained in the business.

47 On 8 April 2008, Mr Lees spoke with Paul Kirton of Macpherson Kelley about acquiring Slea's shares in the business. The file notes of the conversation record that Mr Lees discussed acquiring Slea's shares, and that Mr Haron was to buy Slea's shares to give him a one-third interest in the business. The note recorded that if Mr Haron could not afford to do so, then possibly the Lees brothers would buy Slea's shareholding, and then sell them to Mr Haron. The note also records that if Slea's shares were not sold, the directors' fees would be increased to the benefit of the Lees brothers and Mr Haron (and by implication to the detriment of Slea).

48 On or about 17 April, Mr Tsialtas had a meeting with the Lees brothers and Mr Haron at Macpherson Kelley. According to Mr Tsialtas, he was told by Mr Lees that he, Murray Lees, and Mr Haron wanted Mr Tsialtas to resign and that, if he did not resign voluntarily, they would vote to remove him.

49 On 18 April 2008, Mr Lees sent an email to the email group named 'directors' with six options:

1. Mr Tsialtas to retain his shares until the business was sold.

2. Mr Tsialtas to sell to an acceptable third party at a price to be agreed between the two. The note gave the example of Mildura Finance Limited (MFL), or a related party, as an acceptable third party.

3. OSN/Services to buy back Mr Tsialtas's shares. This would have to be done over time. It was said that this would not be attractive to Mr Tsialtas, because the payment would be treated as a dividend, not capital, and so be taxable as income.

4. Mr Tsialtas to sell his shares direct to Mr Haron. However, there would be a funding issue.

5. Mr Lees, Murray Lees, and Mr Haron to purchase an option to buy the shares at some future date. In exchange, an option fee would be paid over the next two years.

6. Mr Lees, Murray Lees, and Mr Haron to agree to purchase Mr Tsialtas's shares. Again, however, there would be a funding issue, as well as a taxation issue for Mr Tsialtas.

50 Mr Tsialtas said that he understood from the email that Mr Lees, Murray Lees, and Mr Haron did not have the funds to purchase Slea's shares themselves and buy out Slea.

51 On 24 April 2008, Mr Tsialtas was advised that Connective wished to announce his resignation and that, if he did not resign as a director, he would be voted out. Mr Tsialtas said that to preserve his reputation, he felt that he had no other option but to resign and sell his shares as quickly as possible, due to the financial pressure that he was under.

52 On 28 April 2008, Mr Tsialtas gave notice of his intention to resign in an email sent to Mr Lees, Murray Lees, and Mr Haron. The notice contained requests that, amongst other things, Mr Tsialtas be paid management fees for a period not exceeding six months; and, importantly for what followed, that Mr Tsialtas be kept 'informed of any major decision that the directors may be considering, such as new employees or a change in management fees paid to directors'.

53 By email dated 7 May 2008, Mr Lees responded to Mr Tsialtas's email. Mr Lees agreed that Mr Tsialtas would be paid management fees for three months (April, May, and June 2008). Mr Lees also undertook to provide Mr Tsialtas with 'a monthly [profit and loss statement] and balance sheet, and an annual report by no later than 90 days after the completion of the financial year'.

54 Mr Lees, however, did not accede to Mr Tsialtas's request to be told in advance of any major decision contemplated by the directors, instead stating that Mr Tsialtas 'will be informed of any major decisions that have been taken as is your right as a shareholder'. Mr Tsialtas agreed to these terms, and formally resigned on 9 May 2008 as a director of the Connective companies.

55 On 9 May 2008, Mr Lees wrote to Mr Tsialtas in response to his resignation letter and asked him if he was intending on having discussions with parties other than MFL. This letter implies that, prior to resigning, Mr Tsialtas had informed Mr Lees that he was seeking to sell Slea's shares in the Connective companies to MFL.

56 Slea alleges that after Mr Tsialtas resigned as a director of the Connective companies and ceased any employment with them, the conduct of the affairs of the Connective companies was oppressive to Slea. However, as mentioned above, Slea does not allege that the circumstances surrounding the resignation of Mr Tsialtas constituted oppressive conduct by the Connective companies, Millsave, or Mr Haron.

57 The defendants did not invite the Court to make any findings as to whether the allegation against Mr Tsialtas reflected events that actually occurred, and counsel for Slea expressly disavowed any case that Mr Tsialtas's departure was motivated by ulterior motives or that the majority acted unreasonably in asking Mr Tsialtas to leave.

58 Slea does not make any allegations in the oppression proceeding relating to Mr Tsialtas's exclusion from management of the Connective companies. In those circumstances, I do not intend to delve into any further details of the circumstances of Mr Tsialtas's departure from management of the Connective companies, except for what briefly follows.

59 When Mr Tsialtas left, Mr Lees was then the only director of the Connective companies. Murray Lees was not, and never became, a director. Mr Haron did not become a director until 2011. Nevertheless, Murray Lees and Mr Haron acted as if they were directors.

60 Mr Tsialtas says that when he was asked to leave, he asked Mr Lees, Murray Lees, and Mr Haron for time to consider his options. In substance, Slea alleges that Mr Lees, Murray Lees, and Mr Haron then led Mr Tsialtas to believe that they were agreeable to Mr Tsialtas selling Slea's shares in Services and OSN to an outside investor. Slea alleges that, in fact, unbeknownst to Mr Tsialtas, Mr Lees, Murray Lees, and Mr Haron had no intention of approving such a sale, but instead resolved to seek to acquire Slea's shares themselves, for less than their true value, by preventing Slea from selling to anyone else, and by withholding dividends from Slea. As discussed below, I find that Slea was grossly misled by Mr Lees about the Connective companies' preparedness for Slea to sell its shares in the Connective companies to a third party.

61 After Mr Tsialtas ceased employment at the Connective companies, he sought to sell Slea's shares in the Connective companies to obtain some capital, as he was in difficult financial circumstances. He was the sole breadwinner for his family, with a wife and two young daughters to provide for. On the basis of his previous earnings, he had built up significant financial obligations, including three mortgages and loans in relation to two cars. These obligations were ongoing, even though his earnings from the Connective companies had ceased. His departure from the Connective companies was unexpected and sudden. Mr Tsialtas gave evidence that he made arrangements to sell his interests in two properties (keeping the family home). However, Mr Tsialtas determined that these steps were insufficient to financially sustain him and his family, and decided to sell Slea's shares in the Connective companies.[1]

62 At this stage, Mr Tsialtas sought to sell a 25% interest in the Connective companies, as he was still contemplating selling 81⁄3% interest to Mr Haron, with Millsave selling 162⁄3% to Mr Haron.

63 Of the options set out by Mr Lees in his 18 April 2008 email, the only one that would result in Slea being immediately paid for its shares, was a sale to a third party. Following his departure, Mr Tsialtas prepared an information memorandum and delivered it to several interested parties, including MFL, Aussie Home Loans, Liberty Financial Planning (Liberty), Property Planning Australia, and Loankit. Mr Tsialtas also provided a copy of the information memorandum to Mr Lees.

64 The memorandum stated that: '[i]n October of 2006 the shareholders agreed to sell 25% of Connective companies to Mark Haron for a consideration of $875,000 that valued Connective at $3.5 million at that point in time'. Mr Tsialtas was looking to sell 25% of his one-third shareholding, with the remainder (8.3%) to form part of Mr Haron's shareholding (either to be sold to Mr Haron or already sold to Mr Haron, depending on the view taken of the 10 October 2006 meeting).

65 At this point Liberty, a major privately held finance company, enters the picture. Liberty features significantly in this case, and assisted Slea with this litigation. After leaving the Connective companies, Mr Tsialtas subsequently found employment with BEAT Services (BEAT), a subsidiary of Liberty.

66 As discussed below, Liberty has an agreement with Slea to acquire two-thirds of the Connective companies' shares if Slea is successful in obtaining an order for the purchase of Millsave and Mr Haron's shares in the Connective companies. Under this arrangement, Slea would be left with its one-third share in the Connective companies.

67 Liberty is a non-bank finance company providing home and commercial loans, as well as motor loans and some insurance. It predominately makes its loans available through mortgage brokers and finance brokers. Liberty has relationships with many mortgage aggregators in Australia and New Zealand, and therefore access to their broking networks.

68 Liberty was on the Connective companies' lending panel from around 2003 until about 2014. Liberty entered into an 'introducer agreement' with Connective in 2003. Being on Connective's lending panel was very helpful to Liberty, as a network of brokers used the Connective panel to access lending products for their clients. Liberty had not been in competition with the Connective companies, but rather was a user of its services.

69 From 2009, Liberty has been interested in investing in the Connective companies or forming a business relationship with the Connective companies. Liberty formed the view that an association with, or acquisition of, the Connective companies would be of financial benefit. An increasing number of the loans that Liberty was making were coming through the Connective relationship. Liberty considered the Connective business to be a vibrant business and one that would continue to grow.

70 Accordingly, as discussed below, Liberty has sought to buy Slea's interest in the Connective companies. It has also sought to buy the Connective companies as a whole, or enter into some sort of partnership with the Connective companies. All such approaches have failed, but they demonstrate Liberty's genuine and continuing interest in investing in the Connective business.

71 James Boyle of Liberty learned that Mr Tsialtas had left the Connective business when Mr Tsialtas dropped off the information memorandum. Mr Tsialtas also informed Mr Boyle that he wanted to sell his shareholding in the Connective companies.

72 Mr Boyle gave evidence that, since the memorandum was not in a format that would allow Liberty to have an informed view of the Connective business, no further action was taken at this point.

73 As noted earlier, Slea contends that it was falsely led by Mr Lees to believe that the Connective companies were agreeable to, or would not oppose, Slea selling its shares in the Connective companies to other interested parties.

74 It is necessary, therefore, to canvass the attempts made by Slea to sell its shares and the behaviour, particularly of Mr Lees, in misleading Slea as it alleges, when, in fact, Mr Lees, Murray Lees, and Mr Haron had secretly agreed to put financial pressure on Mr Tsialtas and Slea, in order for them, or their companies, to buy Slea's shares in the Connective companies at an under value, and to prevent Slea from selling its shares in the Connective companies to an outside investor.

75 Mr Tsialtas began negotiating with Peter Schroeder and Jeff McDonald of MFL to buy Slea's shares in the Connective companies.

76 On 13 May 2008, Mr McDonald emailed Mr Lees to inform him that MFL was keen to do a deal with Slea, but recognised that they also needed to sort out matters with Mr Lees, before negotiating with Mr Tsialtas.

77 On the same day, Mr Schroeder of MFL forwarded Mr McDonald's email to Mr Tsialtas. In his email, Mr Schroeder said that he and Mr McDonald had been working on the deal for the purchase of Slea's shares in the Connective companies. Mr Schroeder indicated that their approach was twofold, as without the Connective companies' agreement, it would be difficult to make a deal that provided sufficient return to support the borrowings required to purchase Slea's shares.

78 On 19 May 2008, 10 days after Mr Tsialtas had resigned from the Connective companies, Murray Lees proposed to Mr Lees and Mr Haron that they should put financial pressure on Slea by preventing it from selling its shares to a third party and reducing the profits available for distribution to shareholders. Applying such pressure would then enable Mr Lees, Murray Lees, and Mr Haron to purchase Slea's shares in the Connective companies below their true worth.

79 This strategy, referred to in the oppression proceeding as the defendants' 'financial pressure strategy', forms a significant part in the case against the defendants in the oppression proceeding.

80 The financial pressure proposal referred to above, and formulated by Murray Lees, was contained in his email to Mr Lees and Mr Haron of 19 May 2008 (the financial pressure email). In due course, I will consider two further emails, which were emails containing strategies for placing financial pressure upon Slea and Mr Tsialtas, which were put forward by Andrew Butler, the Connective companies' accountant. These are known as the version 1 and version 2 emails.

81 The financial pressure email and the version 1 and version 2 emails were not discovered by the defendants in the oppression proceeding and, in fact, had been deleted from the relevant files of the Connective companies. However, the emails were discovered in the Haron proceeding, following orders by Associate Justice Daly for an independent expert to look for documents in the possession of the Connective companies. The expert provided a report dated 13 October 2013 in which he identified documents that had been deleted from the files of the Connective companies. As a consequence of the expert's recovery of deleted documents, the Connective companies filed a supplementary list of documents in compliance with the order of Associate Justice Daly.

82 The financial pressure email sent by Murray Lees to Mr Lees and Mr Haron on 19 May 2008 states the following:

Sale of Sof's Shares and other matters

With the sale of Sof's shares possible it's time for us to consider very carefully what WE want to occur.

What is our best result?

We don't owe anybody anything!

Sof has created this situation himself, I strongly believe that he is on his own in this. We have paid him out 3 months' pay despite not working and I think that is the end of our obligation to him. From here on in the sale of his shares poses a great opportunity for us and also equally the chance to get things very wrong.

Peter/ Mike buying in pros and cons

Clearly in one way or another they want the director's fees to pay for their purchase costs of getting into the business. For what it's worth Sof had the temerity to suggest that between Mike Geoff and Peter they should be able to command the same salary/director fee that he was getting!!

If Sof wants to sell to Peter [Peter Schroeder of MFL] and they become directors I would only agree to the payment of a token directors fee, equivalent to spending one day a month in the business attending a directors meeting. Anything else that is earned is via profit distribution.

I am not particularly keen on having another business partner come in particularly if it involves some sort of manufacturing a fee to satisfy their needs to make the deal viable.

I am very comfortable now with our ability between the 3 of us to make good decisions for the betterment of the company, and I also do not feel we need another director doing work at the directors pay level.

Whilst there is an argument that Peter and his cohorts may have some good ideas I don't think now is the time to add any more people and just as importantly costs to the business.

Making COSN's profits go away

We need to speak to Darren straight away so that any profits in COSN (the company with the commissions and therefore the profit it's making from the interest it is earning) is brought back to neutral, to avoid having to distribute profits to shareholders. Perhaps this is best achieved by Services charging a management fee.

How do we go about it?

I think we need to drive Sof's price down by making the deal impossible for Peter and/or anyone else to come in if they are relying on a profit distribution or directors fees to fund.

This, plus the fact that we can veto anyone we don't want to buy in means we might be able to get his 25% for $500,000. Even then if we are the only realistic purchaser he might not have any choice. The only risk with this is if we cross the line into not treating fairly a minority shareholder, or if he then gets a job and decides to hold his shares till we all sell.

Time is on our side with this and though we would like to clear this up quickly the longer it goes the stronger our position.

83 In early 2006, a buyer had offered $4 million for the Connective business, thus ascribing a value of $1 million to a 25% holding. Presumably, the business would have been worth more by 2008. Murray Lees was proposing to put financial pressure on Slea and induce it to sell its shares in the Connective companies at $500,000 which was, on one reading, half of their true value, on the assumption that Slea's holding would be reduced to 25%. Slea's interest would be reduced to 25% if Mr Haron acquired his proposed 25% holding.

84 Also, two years earlier, in 2006, Mr Lees, Murray Lees, Mr Tsialtas and Mr Haron had agreed on a price of $875,000 for Mr Haron's acquisition of a quarter interest in the Connective companies; a sum far in excess of the $500,000 suggested by Murray Lees.

85 Slea contends that the conduct of Mr Lees and Mr Haron, as discussed below, indicates that they accepted and implemented Murray Lees' proposal. Slea submits that Mr Lees, Murray Lees, and Mr Haron all understood - and must have understood when Murray sent his email - that without a job, Mr Tsialtas would be under financial pressure, and that this was something that they could and should seek to take advantage of. Mr Tsialtas did not gain employment until October 2008.

86 The financial pressure email further establishes that Murray Lees had no serious intention of allowing MFL to acquire Slea's shares in the Connective companies. That is a clear inference to be drawn from his email of 19 May 2008. Murray Lees did not give evidence to rebut that inference.

87 There was no written reply from either Mr Haron or Mr Lees to the financial pressure email. Notably, there was no evidence of any communication to Murray Lees rejecting his proposal. In cross-examination, Mr Lees denied wanting to make it impossible for MFL to come into the business, and said that he thought it was a 'silly suggestion' to try and get Slea's interest for $500,000. Mr Haron stated that, while he thought that it would be ideal to buy Mr Tsialtas's shares, they would have to do so at a fair price. The subsequent actions of both Mr Lees and Mr Haron establish that they accepted Murray Lees' proposal and acted on it.

Mr Tsialtas continues to negotiate the sale of Slea's shares with MFL

88 Unaware of the financial pressure email, Mr Tsialtas continued to negotiate with representatives of MFL for the sale of 25% of the shares in the Connective companies. Mr Tsialtas believed that MFL had been approved by Mr Lees as a purchaser of Slea's shares in the Connective companies. Mr Lees had no such intention.

89 Mr Tsialtas gave evidence that in July 2008, he and MFL had reached an in-principle agreement for the sale by Slea of a 25% holding in the Connective companies for about $1.25 million.[2] At the same time, Mr Tsialtas also continued to pursue alternative buyers. By July 2008, Mr Tsialtas (who had not yet secured a job) was drawing on credit cards to meet his financial commitments.

Mr Tsialtas's request for financial information

90 On 1 July 2008, Mr Tsialtas wrote to Mr Lees seeking financial statements for the Connective companies and sought to schedule a meeting to discuss the payment of a dividend by the Connective companies.

91 Mr Tsialtas also confirmed his understanding that Mr Lees had arranged to meet the management of MFL to discuss MFL's purchase of Slea's shareholding in the Connective companies. In the email of 1 July, Mr Tsialtas said that, as Mr Lees was aware, Mr Tsialtas and MFL had made an in-principle agreement in line with the discussion that Mr Lees had held with Mr McDonald, as well as Mr Lees' confirmation that the Connective companies had accepted MFL as a purchaser of Slea's shareholding in the Connective companies. Although not expressly stated, I infer that Mr Tsialtas wanted the financial information from Mr Lees to assist in his negotiations with MFL.

92 In any event, Mr Lees declined to provide the information sought by Mr Tsialtas. Instead, in an email dated 3 July 2008, Mr Lees indicated that he could prepare interim financial reports for Mr Tsialtas, and that he would make these reports available for inspection by Mr Tsialtas at a mutually agreed time and place. In his email, Mr Lees wrote that they were reluctant to release the figures in hard or soft copy.

We will meet with Jeff, Peter & Mike Nichols (?) next Tuesday. We point out that it is not correct to say that we have approved MFL - we have only ever said that they were a party that we would consider. This is what we have consistently said in the past and remains so now. Having said that, we may also be comfortable in principal [sic] with the Property Planning guys, should your dealings with them prove fruitful, and on that basis are prepared to issue them with a copy of your information memorandum. Can you please provide a copy of the document by email.

Our acceptance of any purchaser will ultimately depend very much on what they propose and what they offer to the business. As you can understand, we are very cautious about taking on a new business partner - especially in an operational role.

I also understand that you are of the opinion that we do not have the right to refuse to transfer shares to a party not approved by us. Our advice is that both company constitutions are quite clear on this. Please let me know if you have advice to the contrary.

Finally, I remind you that under the constitutions of both companies, you are obliged to offer the shares to the existing shareholders at the same terms prior to any sale being considered to a third party, and that we may elect to purchase all or part of your shares on the same terms. Can you please confirm if an offer has been made to you that you are prepared to accept.

As a last but critical matter, we must finalise the transfer of shares to Mark before we can entertain any other transaction. Do you require copies of the documents M&K drafted for the transfer? If so, let me know and I will forward them to you.

94 Mr Lees was, by this conduct, still conveying to Mr Tsialtas that the Connective companies were open to Slea selling its shares in the Connective companies to MFL, at a point in time when the Connective directors had resolved to thwart any such sale and to buy Slea's shares themselves.

95 Regarding Mr Tsialtas's request for financial information, Mr Lees said that:

The companies legal obligations to shareholders is to provide a copy of the end of financial year statements and directors reports. We anticipate that these will be ready by September when Darren has had time to finalise them. The detailed broker numbers that you have requested do not fall under this obligation, but we are happy to go over these with you at a meeting. If you require these for a potential purchaser of your shares, then please direct them to us, and we can provide the information directly.

96 With respect to dividends, Mr Lees said 'there won't be a dividend declared for 07/08 as the company has effectively traded at breakeven over the year'.

97 The reason for the Connective companies claiming that they did not having sufficient funds to pay a dividend was that Mr Lees, Murray Lees, and Mr Haron had put in place measures to make that so. They had begun increasing their 'management fees' and thus reducing profits. In this way, they were able to extract money for themselves and, at the same time, reduce the profits available for distribution to Mr Tsialtas. This conduct is discussed later as one of the heads of oppression.

98 On 16 August 2008, Mr Tsialtas received an email from Mr Butler, an accountant with Wellingtons Accountants Pty Ltd (Wellingtons). Mr Butler advised Mr Tsialtas that he acted for MFL in relation to Mr Tsialtas's sale of equity in the Connective companies and sought a meeting with Mr Tsialtas. Mr Butler attempted to renegotiate the MFL deal with Mr Tsialtas, offering him a lower price.

99 Mr Butler subsequently acted for the Connective companies. Mr Butler became a party to the financial pressure strategy to acquire Slea's shares at a reduced value. Mr Butler was the author of the version 1 and version 2 emails referred to earlier, which proposed strategies for acquiring Slea's shares at below their true worth. These are discussed below.

100 On 20 August 2008, Mr Lees, Murray Lees, and Mr Haron had a meeting and resolved to 'communicate a respectful NO' to MFL in relation to the latter's purchase of Slea's shares. At the same meeting, Mr Lees, Murray Lees, and Mr Haron discussed making an offer for Slea's shares in the Connective companies on the following terms: $100,000 per annum for two years, in exchange for the option to purchase Slea's entire shareholding for $600,000 at any time in the future. Under cross-examination, Mr Haron and Mr Lees each agreed that this was not a good deal for Slea. It valued the Connective business at $1.8 million.

101 Mr Haron, Mr Lees, and Murray Lees understood the financial pressure that Mr Tsialtas was under, because they had reached the point of thinking there was a possibility, worth discussing with Mr Tsialtas, that he might agree to this very bad deal.

102 On 3 September 2008, Mr Tsialtas spoke to Mr Schroeder of MFL, and later emailed him, accepting the lower offer of $900,000 for a 25% stake in the Connective companies, which had previously been made by Mr Butler. Mr Tsialtas informed MFL that he had not received any updated management reports from the Connective companies. However, he understood that, during the last five months, revenues of the Connective companies had grown significantly.

103 The fact that Mr Tsialtas was prepared to accept this reduced value for Slea's shares, even though the business had grown significantly, supports the conclusion that Mr Tsialtas had been driven to the point of having to sell Slea's valuable asset in circumstances where he did not have up-to-date financial information. This is despite Mr Tsialtas's requests to Mr Lees for such information, and in circumstances where Mr Tsialtas did not know that Mr Lees, Murray Lees, and Mr Haron had embarked on the financial pressure strategy to intentionally cause him financial hardship.

104 On 10 September 2008, Mr Schroeder advised Mr Tsialtas that Mr McDonald of MFL was going to meet with Mr Lees that day. In an email sent on the same day, Mr Tsialtas responded 'Great!' to Mr Schroeder and commented that Mr Lees did not want to get in the way of a deal, and that Mr Lees sounded legitimate. Mr Tsialtas said to Mr Schroeder that Mr Lees had the utmost respect for Mr Schroeder and Mr Butler.

105 Mr Tsialtas mistakenly thought, based on an earlier discussion with Mr Lees, that Mr Lees did not want to get in the way of a deal where Mr Tsialtas was selling to a third party. However at this stage, as noted above, Mr Lees, Murray Lees, and Mr Haron had already resolved to say 'no' to MFL.

106 Shortly after Mr Tsialtas's email to Mr Schroeder, Mr McDonald emailed Mr Schroeder saying that he had spoken to Mr Lees the previous night, but that there had been 'no real guts in the conversation'. Mr McDonald said that he had arranged to meet Mr Lees to discuss the Connective deal and the possibility of moving forward. He said that Mr Lees had told him that there was no deal to be had, but it seemed that he was open to further discussion at that point. Mr McDonald added, however, that they needed to make sure that Mr Tsialtas understood that the 'deal is currently dead', presumably based on Mr Lees' advice that there was no deal to be had.

107 On 12 September 2008, solicitors acting for Mr Tsialtas wrote to Mr Lees requesting a meeting to discuss how the sale of Slea's shares could be realised, and whether Mr Lees was willing to participate in such a realisation. At this stage, although MFL knew that the purchase of Slea's shares in the Connective companies was dead, following Mr McDonald's discussion with Mr Lees, Mr Lees had not informed Mr Tsialtas that he had 'killed' the sale of Slea's shares to MFL.

108 On 3 October 2008, Mr McDonald wrote to Mr Tsialtas informing him that he had met with Mr Lees and Murray Lees, and that they had informed Mr McDonald that there was no deal between Connective and MFL, and that Mr Lees and Murray Lees had also commented that they 'didn't HAVE to do anything'.

109 In October 2008, Mr Tsialtas secured employment with BEAT, a mortgage broking firm within the Liberty group and a client of the Connective companies.

110 On 21 October 2008, Mr Tsialtas again sought financial statements for the Connective companies from Mr Lees. Mr Lees replied to Mr Tsialtas that Darren [Dickinson, a Connective officer] was working on the financials. Mr Tsialtas replied that they also needed to think about a dividend policy. In response, Mr Lees said that management accounts showed a loss of $55,000 for the previous financial year, so he did not imagine that there would be a dividend that year, but that it would be relevant for the current financial year (ie, 2008-2009).

111 Contrary to this representation by Mr Lees regarding the payment of a dividend in the financial year 2008-2009, the Connective companies had no intention of paying any dividends at that stage. Mr Lees, Murray Lees, and Mr Haron had decided not to pay dividends to drive down the value of Slea's shares, so that they could buy Slea's shares on the cheap. I deal with dividends under the first head of oppression discussed below.

Discussions regarding a share transfer to Mr Haron

112 On 21 October 2008, Mr Tsialtas emailed Mr Lees suggesting a meeting be held to talk about dividend policy, the sale of Slea's shares, and payment by Mr Haron of the price of shares sold to Mr Haron. Mr Lees told Mr Tsialtas that 'the clear understanding of all parties is that the payment by Mark of his share price occurs on sale of the business', and asked Mr Tsialtas if he was looking to change his agreement on this. Mr Tsialtas replied, informing Mr Lees that a formal agreement was never finalised, as they were waiting for legal and taxation advice. Consequently, Mr Tsialtas was looking to formalise the payment options in line with the discussions that Mr Lees, Murray Lees, and he had had on a number of occasions.

113 Mr Tsialtas said that a payment plan from profit distributions should be agreed upon. This would be something along the lines of 50% of Mr Haron's profit to be used to repay the debt to the three of them, and that they would implement an end date by which all debt must be repaid. Mr Tsialtas said that they had also discussed the potential to charge interest. Mr Tsialtas said that he believed this was in line with the discussions that Mr Lees was having with Macpherson Kelley. Mr Tsialtas continued:

This needs to be agreed upon by all shareholders and formalized before any share transfers are affected. As you would agree the nature of our relationship has changed considerably since we are having these discussions and as such we need to establish formal guidelines.

114 Mr Lees responded, stating that if this was Mr Tsialtas's view, he could not see any point in them meeting, and asked Mr Tsialtas to cancel the meeting.

115 The arrangement suggested by Mr Lees would have effectively meant that Slea received no immediate payment for any shares transferred to Mr Haron, or suffered a reduction of its interest in the Connective companies, if shares were issued to Mr Haron for no payment. Although, privately, Mr Lees said that he had sympathy for Mr Tsialtas's view, he continued to press Mr Tsialtas to transfer shares to Mr Haron without receiving any upfront payment.

116 This email from Mr Tsialtas is significant, as Mr Tsialtas is stating that:

(a) he understood, or his recollection was, that no formal agreement with Mr Haron had been finalised;

(b) from what he recalled, it needed to be finalised with terms of payment;

(c) he recalled discussions about a payment plan for profit distributions along the lines of 50% of Mr Haron's profit being used to repay Mr Lees, Murray Lees, and himself;

(d) there would be an end date by which the debt needed to be repaid; and

(e) they were also discussing the potential payment of interest.

117 Mr Tsialtas recollection is consistent with the Macpherson Kelley documents and Mr Lees' discussions with Macpherson Kelley, which are discussed elsewhere in the judgment. As those documents show, it was Mr Lees who was having these discussions and engaging with Macpherson Kelley on behalf of the Connective companies. The substantial correspondence with Macpherson Kelley about possible terms of any agreement with Mr Haron establishes that no binding agreement was reached, as discussed later.

118 In response to Mr Lees' email cancelling the November meeting, in an email of 22 October 2008, Mr Tsialtas again reiterated that the issue of Mr Haron's payments was never finalised, nor were the terms of the proposed shareholders' agreement. Mr Tsialtas sets out what he said was his best recollection of his discussions with Mr Lees and Murray Lees regarding these issues.

119 On 22 October 2008, Mr Lees replied to Mr Tsialtas, in an email copied to Murray Lees but not Mr Haron, saying that it was his understanding that, '[i]t was agreed by all parties that Mark would buy his shares from us, and that he would not be required to pay until the business was sold. It was on this basis that he came into the business and began working. As I'm sure you would agree, the benefits Mark has brought the business are substantial'. Mr Lees then dealt with his understanding of the payment terms.

Unless we can resolve this, then there isn't much point with further discussions, as I don't want this to be a point of friction going forward. From my and Murray's point of view, any further progress is contingent upon the transfer of shares to Mark being completed. We can then discuss dividend policies and assisting you in the sale of your shares.

121 At this time, Mr Tsialtas also sought to have discussions with Aussie Home Loans; however, these did not go anywhere, as Mr Lees refused to engage with Mr Tsialtas.

122 The Connective companies had resolved not to discuss or pay any dividends to Slea, or assist in the sale of Slea's shares, until the issue of the Haron agreement was dealt with. Importantly, Mr Lees was asserting that there was an agreement for Slea to sell shares to Mr Haron (the alleged Haron agreement). As discussed below, the contemporary records suggest that a share issue was discussed, subject to obtaining legal advice, but not a share sale, as asserted by Mr Lees. As discussed below, I find that no agreement was reached with Mr Tsialtas on the terms upon which Mr Haron would acquire shares in the Connective companies.

Mr Butler's role advising Mr Lees, Murray Lees, and Mr Haron

123 By early April 2009, Mr Butler was now providing advice to Mr Lees, Murray Lees, and Mr Haron. As mentioned above, Mr Butler had previously acted on behalf of MFL in its negotiations with Mr Tsialtas to purchase Slea's shares in the Connective companies.

124 Mr Butler became intimately involved in advising Mr Lees about negotiating with Mr Tsialtas. Mr Lees' confidence in Mr Butler was demonstrated by Mr Lees appointing Mr Butler as a director of Mr Lees' private company, Millsave. Mr Butler played a significant role in events that Slea alleges were oppressive, or are relevant to assessing the alleged oppressive conduct of the directors and majority shareholders of the Connective companies. Mr Butler was not called as a witness by any of the defendants in the oppression proceeding to rebut any inferences that may be drawn from his conduct, nor was any explanation proffered for the failure to call him.

125 In an email dated 22 April 2009, Mr Butler offered advice on the situation with Mr Tsialtas. He advised that a buyout was the way to go, with a lump sum now and monthly payments over three years, and a further lump sum at the end.

126 In a further email that day, Mr Butler set out what he suggested as six points that should be put to Mr Tsialtas as an offer for his shares:

1. They agree on a price with Mr Tsialtas for all of Slea's shares; ie, the 33%;

2. the payment of a lump sum up front;

3. the shares are to be transferred in full when the lump sum is paid. Mr Butler said that this would have implications for Mr Tsialtas, as he would have an effective CGT exposure on transfer, but there was no need to flag that with him;

4. Mr Tsialtas to discuss with Mr Butler if he wants some form of security;

5. the final payment would be made at the end of three years; and

6. a point related to structuring the payments coming out of the Connective companies to the shareholders.

127 In relation to point three, Slea would incur capital gains tax (CGT) on the purchase price when that the transfer occurred, even though Slea would not receive the purchase price at that time. The CGT implications referred to by Mr Butler were significantly disadvantageous to Slea.

Discussions between Mr Tsialtas and Mr Lees on the purchase of Slea's shares

128 By 27 April 2009, Mr Tsialtas and Mr Lees had been discussing the possibility of Services and OSN buying back Slea's shares in the Connective companies. At 7:26pm on 27 April 2009, Mr Tsialtas emailed Mr Lees seeking to document their discussions. Mr Tsialtas said that, once they reached agreement, they could both seek advice and formalise the agreement.

129 First, Mr Tsialtas's email recorded that consideration for the shares was to be $1,291,666. Secondly, Slea would be issued with B class shares in each of the Connective companies, with the understanding that the Connective companies would become liable for the consideration of $1,291,666. Thirdly, the Connective companies would commit to a payment plan whereby the entire consideration would be paid within a 24-month period. Mr Tsialtas also sought a charge, lien, or mortgage to secure the payment. There would be amendments to the constitution to protect the rights of the B class shareholder. A personal guarantee would be offered by the directors of the Connective companies. Settlement was to be effected on 1 July 2009. Finally, profit distribution for the 2009 financial year was to be paid to Slea.

130 According to Mr Tsialtas's evidence, $291,666 would be paid by Mr Haron, in consideration for the transferred shares, and $1 million would be paid for Slea's remaining stake (25%) in the Connective companies.

131 Mr Lees replied on 27 April 2009, saying that he would not be giving a personal guarantee. Mr Lees said that any commitment to a payment plan needed to reflect changing business conditions. Mr Lees said that he would run the proposal past Murray Lees and Mr Haron the next day.

132 Meanwhile, in early 2009, Mr Tsialtas resumed discussions with Liberty. Mr Tsialtas borrowed approximately $85,000 from Liberty, as he was financially distressed. Mr Boyle told Mr Tsialtas that Liberty was considering the prospect of becoming involved in the Connective business. On 18 May 2009, having reached no deal with the Connective companies, Mr Tsialtas entered into an agreement to sell his shares in Slea to Minerva Financial Group Pty Ltd (Minerva) (a related body corporate of Liberty) for $1.15 million and three BEAT home loan licences (2009 agreement).

133 Under the 2009 agreement, Mr Tsialtas sold his shares in Slea to Minerva. Slea did not sell its shares in Services and OSN to Minerva. Minerva and Mr Tsialtas ultimately agreed to set this sale aside, as discussed below. The problem with the sale was that Slea held its shares in the Connective companies on trust for Mr Tsialtas's family trust, thus the transaction failed to effect what was intended, which was a sale of Slea's shares in the Connective companies. Whilst the shares in the trustee changed hands, the beneficial owners remained the beneficiaries of Mr Tsialtas's family trust.

Liberty and the Connective directors meet to discuss the 2009 agreement

134 On 21 May 2009, following entry into the 2009 agreement with Minerva, Mr Tsialtas met with Mr Lees, Mr Boyle, and Mr Peter Rollason of Liberty. In the meeting, Mr Tsialtas told Mr Lees that he had sold his shares in Slea to Liberty. He then left the meeting so that Mr Boyle and Mr Rollason could have a discussion with Mr Lees. Mr Boyle and Mr Rollason told Mr Lees how excited they were at becoming involved with the Connective companies.

135 As discussed below, a statement by Murray Lees has been admitted into evidence. In this statement Murray Lees said that he, Mr Lees, and Mr Haron had decided that they did not want Liberty as a shareholder, so they looked at options to force the unwinding of the 2009 agreement between Minerva and Slea.

136 On 22 May 2009, Mr Lees emailed Mr Tsialtas stating that, due to the sale of Slea, 'we will need to update the Master with the new trustee of your family trust'. He also asked for details of the new trustee and inquired whether Mr Tsialtas wanted commissions paid to the same account. Mr Tsialtas replied on the same day, stating that everything remained the same, and there were to be no changes to the bank account. Mr Tsialtas did not understand the issue caused by the sale of the shares in the trustee company, which did not equate to sale of the beneficial interest in the shares in Connective, whereas Mr Lees did.

137 In any event, Mr Lees contacted Mr Boyle and arranged a second meeting. The meeting was held on 25 May 2009, with Mr Boyle, Mr Rollason, Mr Lees, Murray Lees, Mr Haron, and Mr Butler in attendance.

138 In the meeting, the Connective team said that they had a strong preference against having Mr Tsialtas as a shareholder. Mr Boyle and Mr Rollason explained Liberty's interest in Connective, and how they thought Liberty could add value to the Connective business. Mr Boyle said that Mr Butler was insistent that Liberty needed to follow the process; however, Mr Boyle was not sure what that meant. Mr Boyle formed the view that Mr Lees and Murray Lees were open to exploring how they could work together, but that Mr Butler was not.

139 On the following day, 26 May 2009, Mr Boyle emailed Mr Lees, setting out their understanding of what had been discussed. Mr Boyle said that he understood the shares in the family trust had been sold, but that there had been no change in the beneficial interest of Slea in Connective. Mr Boyle, however, proposed working out an agreement for Liberty to acquire shares in Connective. He acknowledged that Connective wanted to know what Liberty had agreed to pay Mr Tsialtas for Slea's shares in Connective.

140 At this point, Connective had no interest in Liberty becoming a shareholder in Connective, or of Connective being involved with Liberty. Rather, Connective had been trying to determine the purchase price agreed between Slea and Liberty, and that Connective mislead Liberty into believing that it was interested in some sort of arrangement with Liberty, in order to get this information.

141 On the same day, Mr Lees replied to Mr Boyle's email. The only matter raised by Mr Lees was that Mr Boyle had made no mention in his email about Mr Haron's entitlement to receive shares from both Millsave's and Slea's shareholding. Mr Lees then outlined the following: Slea had agreed to transfer 25% of its shares to Mr Haron; Millsave was to transfer 25% of its shares to Mr Haron; consideration for the transfer was to be $875,000 payable to Slea and Millsave, in proportion to the shares transferred; and payment was not due unless and until the Connective companies or the Connective business was sold. Mr Lees asked Mr Boyle to confirm his understanding and acceptance of this arrangement.

142 On 27 May 2009, Mr Boyle responded to Mr Lees' email, stating that '[p]er our conversations, I confirm that there is total agreement with you first three points'. Mr Boyle said that the last point on the timing of payment was new information to them (ie, that payment was not due until the Connective companies or the Connective business was sold). Mr Boyle said he was confident that would be acceptable as well.

143 This exchange confirmed that Mr Tsialtas had told Mr Boyle about the transfer to Mr Haron and the consideration, but had not referred to the fourth point that payment was not due unless and until the Connective companies or the business was sold. Mr Tsialtas had not advised Liberty of the fourth point, as that did not reflect his understanding of what had been agreed (as opposed to discussed). The terms of payment remained a matter that had to be resolved.

144 On 27 May 2009, Mr Boyle and Mr Lees met in the board room of Liberty. Mr Lees told Mr Boyle that the Connective management team were not happy with what had happened between Liberty and Slea; that they would take legal action if the 2009 agreement between Minerva and Slea was not unwound; and that Mr Lees wanted Liberty to step away.

145 After the meeting, Mr Lees emailed Mr Boyle to confirm that he, Murray Lees, and Mr Haron felt that they had reached an impasse in their dealings with Liberty. Mr Lees said that they were concerned that their rights under the constitutions of the Connective companies had been breached. Mr Lees said that, as neither Mr Tsialtas nor Liberty had disclosed the details of their dealings with Slea, they felt that they had no choice but to seek discovery of the matters lying behind the transactions through the courts. Mr Lees informed Mr Boyle that they had instructed solicitors about the matter and proceedings were currently being drawn up.

146 Mr Lees said that they were prepared to suspend such actions if Liberty would undertake to unwind the transaction, thereby returning Slea to its original position. Mr Lees said that if they could reach that position, then they were prepared to deal directly with Liberty in good faith.

147 Mr Boyle said that Liberty took Mr Lees at his word and, given that Liberty's aim was to reach a consensual agreement with the Connective companies, they decided to unwind the 2009 agreement to preserve the relationship with Mr Lees and Connective.

148 On 29 May 2009, Mr Boyle told Mr Lees that Liberty would rescind the 2009 agreement, as Mr Lees insisted, and engage in direct discussions with Mr Lees. In his evidence, Mr Boyle said that, in order to improve the relationship and work more closely with Mr Lees and the management team, Liberty had agreed to rescind the transaction.

149 Mr Lees sent a follow-up email to Mr Boyle, confirming that Slea would undertake to transfer 25% of its shares to Mr Haron's entity by the end of the following week, on the terms already discussed, namely: that Liberty had agreed to sponsor a Connective product development program; that Liberty/Minerva had provided confirmation that Mr Tsialtas/Slea was free to deal with the shares, and that there was no encumbrance or obligation on Mr Tsialtas or Slea that would prevent his dealing with the shares in future; that the Connective companies and their directors had agreed not to take any further action against Mr Tsialtas or Slea in respect of this transaction; and an undertaking from Mr Tsialtas that, in future, he must deal with Mr Lees, Murray Lees, and Mr Haron directly on the proposed sale or dealings with Slea's shares.

150 Later that day, Mr Boyle told Mr Lees that he presumed that Mr Lees intended to include Liberty/Minerva on point four (ie, that the Connective companies and the directors would take no further action against Liberty/Minerva).

151 The 2009 agreement between Mr Tsialtas and Liberty was subsequently rescinded in accordance with an agreement dated 3 June 2009. As a consequence, Slea remained as trustee of Mr Tsialtas's family trust and continued to hold shares in the Connective companies.

152 Mr Lees informed Mr Boyle that the Connective companies were open to having Liberty as an investor and strategic partner. If this had happened, it would have meant Liberty coming in and presumably buying out Slea as a shareholder in Connective.

153 On 4 June 2009, Mr Boyle confirmed to Mr Lees that ownership of Slea had not changed as a consequence of discussions held over the previous weeks. Mr Boyle also confirmed that there was no existing agreement between Liberty, Minerva, and Mr Tsialtas regarding Slea or the Connective companies. Mr Boyle advised Mr Lees that Mr Tsialtas was happy to discuss any future plans for the sale of Slea with Mr Lees ahead of any formal agreement. Mr Lees replied, expressing his appreciation and confirming that no legal action would be pursued against any person in respect of the matter. Mr Lees informed Mr Boyle that the Connective companies would be in touch in the coming weeks regarding future opportunities, if that suited Liberty. Thus, Mr Lees was still representing to Liberty that the Connective companies remained open to entering into some sort of commercial relationship with Liberty, whereas, the Connective companies had no such intention.

154 As discussed below, Mr Lees was continuing to make similar representations to Mr Tsialtas that the Connective companies were open to some sort of commercial relationship with Liberty, which would presumably involve Slea's shares in the Connective companies, and that Mr Lees was seeking to use these indications to Mr Tsialtas as an incentive for Mr Tsialtas to resolve the alleged Haron agreement.

155 Despite Liberty's expectations, no further agreement was reached between Liberty and the Connective companies. I am satisfied that Mr Lees had no intention of dealing with Liberty except in order to unwind the agreement between Mr Tsialtas and Liberty. Mr Lees falsely led Liberty to believe that the Connective companies were interested in coming to some sort of arrangement with Liberty. Mr Lees' misleading dealings with Liberty will be dealt with in more detail below.

Further discussions regarding the alleged Haron agreement

156 On 5 June 2009, Mr Lees again spoke to Mr Tsialtas about the alleged Haron agreement. Mr Lees confirmed their conversation in an email that evening to Mr Tsialtas. Mr Lees said that getting the issue of Mr Haron's shares resolved was a precondition to any future discussion about the Connective companies consenting to Mr Tsialtas transferring Slea's remaining 25% interest in Connective to another party. In the email, Mr Lees again set out his understanding of the alleged Haron agreement, and asked Mr Tsialtas to correct him if he had misunderstood it.

157 Mr Lees claimed that the terms were that 25% of the shares in the Connective companies would be transferred to Mr Haron in consideration of $875,000. Mr Lees referred to the discussions with Mr Haron and said that, 'on reviewing my notes from the time', they had discussed the first $875,000 being distributed amongst the original shareholders '(ie, you Murray and I)', in the event of a partial sale of the shares or the business. As stated earlier, none of these individuals were shareholders in the Connective companies; however, between themselves, they were recognised as the de facto owners of the Connective companies.

158 The notes referred to by Mr Lees in his email were not produced by Mr Lees at the trial or discovered by any of the defendants in the oppression proceeding. I am satisfied that they were not produced or discovered as they did not exist, particularly as the notes would have been relevant to Mr Lees' case that a binding agreement had been reached between himself, Mr Haron, Murray Lees, and Mr Tsialtas.

159 Mr Lees sought to explain his failure to produce the notes by saying that his email was referencing not so much his notes, but the correspondence that they had exchanged with Macpherson Kelley at the time. This correspondence was limited to the tax advice on the various methods of Mr Haron acquiring shares and the terms of a shareholders' agreement. There was no advice or discussion regarding what the terms of any agreement were or whether any agreement had been reached.

160 It was put to Mr Lees that he told Mr Tsialtas that he had notes from the time that the alleged Haron agreement was made, because he wanted Mr Tsialtas to believe that he had notes of what was discussed with Mr Haron. Mr Lees said that he did not know if that was what he wanted Mr Tsialtas to believe or not. When pressed, and it was put to him that this was why he had written that statement (ie, because he had wanted Mr Tsialtas to believe it), Mr Lees replied, 'I guess yes.'

161 I am satisfied that Mr Lees' evidence about having made a written note of the meeting with Mr Tsialtas, Murray Lees, and himself on 10 October 2006 was a deliberate lie.

162 I am satisfied that Mr Lees falsely asserted to Mr Tsialtas that he had a contemporaneous note, in order to induce Mr Tsialtas into acknowledging a binding agreement. Mr Lees' reference to the non-existent notes is further evidence of his dishonesty and deceitfulness.

163 On 10 June 2009, Mr Lees forwarded to his solicitor, Sven Burchartz of Macpherson Kelley, and to Mr Butler, a copy of Mr Boyle's email to Mr Lees sent on 4 June 2009. In this email, Mr Boyle confirmed the undoing of the agreement with Mr Tsialtas. Mr Burchartz replied to Mr Lees, gloating about how the supposedly 'cute move' by Liberty and Mr Tsialtas, in respect of the 2009 agreement, had 'turned into a bouncing t*rd' and left 'Mr Tsialtas ... on his own', and concluded with '[h]ow about you shout Andrew and I lunch?'.

164 About an hour later, Mr Butler emailed Mr Burchartz and Mr Lees, saying that he loved the sound of lunch, and that although he and Mr Burchartz had not met, he felt that they had a connection already. Mr Butler stated that ASIC records showed a revocation of the original documents, and agreed that it 'looks like our friend [Mr Tsialtas] has been left high and dry!!!'

165 I find that this is further evidence of the financial pressure strategy that Mr Lees, Murray Lees, Mr Haron and the Connective companies sought to impose on Slea, in their attempt to obtain Slea's shares at less than their true value.

Discussions regarding the issue of a special class of shares

166 In the aforementioned email, Mr Butler asked Mr Lees had he heard from Mr Tsialtas, and then listed three matters that needed to be dealt with. Mr Butler referred to the CGT issues involved in transferring shares to Mr Haron, and informed Mr Burchartz that he and Mr Lees had discussed issuing a special class of shares to shareholders other than Slea, so that dividends could be paid to those managing the business (and not Slea), rather than management fees being charged to Connective by the Lees brothers and Mr Haron. The reference to management fees not being charged was a reference to the other method of distributing profits to the benefit of Mr Lees, Murray Lees and Mr Haron, and not to Slea, that had been adopted by the Connective companies.

167 Mr Butler added that a benefit of paying dividends was that management fees were caught for payroll tax and dividends were not. As noted previously, Millsave held the interest of Mr Lees and Murray Lees, although they were often referred to as shareholders.

168 I am satisfied that this evidence supports the finding that Mr Lees, Murray Lees, and Mr Haron had decided not to pay dividends to Slea, and to place financial pressure upon Slea to sell its shares at a low value to the Connective principals, for their benefit and Slea's loss, as proposed in the financial pressure email. At the same time, under the special class of shares strategy, Mr Lees, Murray Lees, and Mr Haron could solely enjoy the benefit of the profits being made by the Connective companies to the exclusion of Slea.

Further discussions on Slea's exit and the issuance of a special class of shares

169 On 14 June 2009, Mr Tsialtas and Mr Lees met to discuss Slea's exit from the business. Later that day in an email to Mr Lees, Mr Tsialtas confirmed that, as they had discussed, all he wanted to achieve was a satisfactory exit from the business. Mr Tsialtas did not expressly agree with Mr Lees' assertion that they had agreed that Mr Haron's payment would be delayed until the business was sold. Mr Tsialtas said that they needed to secure payment of the consideration. He suggested that they seek advice from their corporate advisers on the best method to provide them both with security.

170 In his email, Mr Tsialtas confirmed that Mr Lees had described the proposed purchaser of his holding (which was Liberty) as having met all of Mr Lees' requirements, and that Mr Lees planned to continue discussions with Liberty in early July. Mr Tsialtas continued, saying that Mr Lees' confirmation of the suitability of the potential buyer provided Mr Tsialtas with comfort that they could move to a solution quickly and that any security requirements would reflect this.

171 Mr Tsialtas confirmed that Mr Lees had stated that resolving the issue of Mr Haron was a precondition to unwinding his involvement in the Connective companies and, as such, Mr Tsialtas was acting in good faith based on their discussions and that he was looking forward to progressing Slea's complete exit.

172 The email reflected the disparity in power that now existed, because Mr Tsialtas, under financial pressure, was still seeking to dispose of Slea's shares. The Connective companies had affected the unwinding of Mr Tsialtas's agreement with Liberty. Mr Tsialtas needed to get the Connective companies' agreement to progress Slea's 'complete exit' from the Connective companies.

173 On 15 June 2009, Mr Lees spoke to Mr Tsialtas and, the next day, Mr Tsialtas sent an email to Mr Boyle referring to part of that conversation. Mr Tsialtas said that, according to Mr Lees, the sale in July to Liberty was not a done deal or a fait accompli, but it was also not off the cards. Mr Tsialtas informed Mr Boyle that Mr Lees had said that they were not thinking about it (the sale) until July. Mr Tsialtas also informed Mr Boyle that Mr Lees wanted to understand what benefits Liberty could bring to the business.

174 I am satisfied that Mr Lees falsely and knowingly led Mr Tsialtas to believe that the Connective companies were still prepared to consider accepting Liberty as a shareholder in the Connective companies, when in fact Connective was not prepared to accept Liberty as a shareholder, and was instead intent on Slea's shares being purchased cheaply for the benefit of Mr Lees, Murray Lees, and Mr Haron. I find that Mr Lees' false representations were also intended by him to help resolve the alleged Haron Agreement.

175 Further, at this time, Mr Butler obtained the directors' agreement (that is the agreement of Mr Lees, Murray Lees and Mr Haron) regarding the proposal to issue a special class of shares - 'A class shares' - for the benefit of the directors, which would enable the payment of dividends on those shares, to the exclusion of Slea. In correspondence, Mr Butler said that the directors had resolved that these new shares should be issued with effect from 1 July 2009.

176 Mr Lees spoke to Mr Kirton at Macpherson Kelley about Mr Butler's proposal. In an email of 20 July 2009, Mr Kirton informed Mr Lees that Mr Butler's proposal seemed to be the right idea. Mr Kirton asked how Mr Lees wanted to progress the matter and suggested that he, Mr Lees, and Mr Butler should discuss and plot the course. Mr Lees responded instructing Mr Kirton to work with Mr Butler on the proposal.

177 I am satisfied that this dividend scheme was a further element of the financial pressure strategy, adopted by the directors to impose financial pressure on Slea to induce Slea to sell its shares in the Connective companies to or for the benefit of the principals, at below their true value.

July 2009: Financial pressure strategy (Version 1 and 2 Emails)

178 In July 2009 there was an exchange of emails between the directors and Mr Butler exploring further strategies of acquiring Slea's shares at below their market value. These emails are further evidence of the oppressive behaviour of the defendants.

179 On 22 July 2009, Mr Butler sent two emails to the directors, outlining two strategies, version 1 and version 2, to acquire Slea's shares in the Connective companies.

180 Version 1 was sent by Mr Butler at 6:23pm. Version 1 was expressed in the form of a suggested written offer to Mr Tsialtas. Under the offer, Slea was to transfer all of its shares in the Connective companies to Mr Haron, or his nominated entity, with the total consideration payable for those shares to be $875,000 (subject to confirmation). The offer then provided for payment to be made by monthly instalments of $10,000, with a payment equivalent to any tax payable on the disposal of Slea's shares on or around March 2011. Payments to Slea were programmed to continue until the consideration was paid in full.

181 Mr Butler concluded his email, stating that: 'Version 2 re transfer to Mark of 8% to follow. This will be tricky as we need to share split 1st'.

182 Version 2 was also sent on 22 July 2009. The email stated: 'Here is Version 2 which involves the transfer of equity from Sof and Glenn to Mark to effectively align shareholders as per original agreement and leave Sof swinging with 25 per cent and no offer on the table. That sounds cold doesn't it.. Not to worry.'

183 As can be seen, version 1 involved the sale of all of Slea's shares in the Connective companies for $875,000. Version 2 only involved the transfer of 25% of Slea's shares (after a split of 10 to 1) to Mr Haron.

184 Mr Butler said that, under version 2, after the sale, Slea would hold 25% of the shares in the Connective companies, Mr Haron would hold 25%, and Millsave would hold 50%. Mr Butler said that a market value would need to be applied to the share transfers, and both Slea and Millsave would have capital gains tax events, being the sale of shares.

185 Version 2 included a draft of a letter of offer to Mr Tsialtas from Mr Butler, entitled: 'Transfer of shares held in Connective entities by Slea Pty Ltd.'

186 The draft letter referred to the 'in principle' agreement that the shareholding in the companies be equalised. Mr Butler proposed that this occur via a share split (10 for 1), and then the transfer of 25% of the shares each held by Millsave and Slea to Mr Haron or his company. Mr Butler acknowledged the CGT consequences of the transfer, but said that tax would not be payable for 20 months.

187 Mr Butler's observation that version 2 left Mr Tsialtas swinging was a reference to the fact that Mr Tsialtas would be left with a 25% stake in the Connective companies, which he could not sell without the approval of the other shareholders.

188 Further and significantly, the other shareholders would have 75% of the issued shares. Accordingly, under the constitution of the companies, the majority shareholders would be able to change the constitution of the companies to issue a special class of shares to themselves, which would allow dividends to be paid to that class of shares, but not to Slea, as discussed that day by Mr Butler with Mr Lees and Mr Kirton.

Mr Haron's response to the version 1 and 2 emails

189 On 23 July 2009 at 9:50am, Mr Haron emailed Mr Butler, Mr Lees, and Murray Lees about version 2, saying that he thought the problem with version 2 was that CGT would be payable, with Slea (and Millsave) not actually receiving any cash for the transfer of their shares. This was precisely the problem for Mr Tsialtas that had attended any potential deal with Mr Haron since 2006.

190 Mr Haron said the upside was that they would have greater control 'and of course negotiation power'. That being said, he thought it was worth trying version 1 first; once Mr Haron, Murray Lees, and Mr Lees could agree on a price and payment structure to offer Mr Tsialtas.

191 Later that day, at 4:09pm, Mr Butler responded to Mr Haron, Mr Lees, and Murray Lees, saying that he agreed (presumably with Mr Haron's email). However, Mr Butler said that while CGT was an issue, he noted the following: 'Control which you have highlighted. Holding 75 per cent on the share register is of great use.' I have already referred to the obvious benefits of Millsave and Mr Haron controlling 75% of the share register; notably, the ability to issue a special class of shares, which is described above.

Version 2 does not involve any payments whatsoever to Sof. Simply pass over some of your shares as you said you would Sof and by the way don't expect any dividends in the next couple of years. By the way you have a tax bill to pay. Now we have completed that, we will buy the balance of your shares for $500k staggered over several years if you like. The leverage is good.

193 Mr Butler then discussed timing: 'No tax payable till May 2011 so Glenn has time on his side and we can work through the process for payment of tax.'

194 Mr Butler discussed the CGT consequences in detail, and concluded that '[w]hen you work through it like that and it provides us the opportunity to tighten the noose on Sof it may in fact be the better option. I will wait to hear from you guys'.

195 At 9:01pm, on 23 July 2009, Murray Lees responded to Mr Butler's 4:09pm email in an email to Mr Butler, Mr Haron, and Mr Lees (the Murray Lees version 2 assent), stating under the heading of version 2: 'I think this is without question the best option.'

196 At 9:32am the next morning, on 24 July 2009, Mr Butler responded to Murray Lees, Mr Haron, and Mr Lees saying, '[t]hanks mate. I will await the final sign off from all before we go to Sof'.

197 On 24 July 2009, at 10:49am, Mr Haron sent an email (the Haron version 2 assent) to Mr Butler, Mr Lees, and Murray Lees responding to Mr Butler's email of 23 July 2009 sent at 4:09pm, with the subject 'Re Version 2', saying 'Very good'.

198 On 24 July 2009 at 10:40am, minutes before Mr Haron sent his version 2 assent email, Mr Lees emailed a draft share sale agreement for Mr Haron's shares to Mr Tsialtas. He informed Mr Tsialtas that the document had been originally prepared by Macpherson Kelley. I am satisfied that Mr Lees was seeking to give effect to the version 2 strategy. The email from Mr Lees confirms that he had accepted implementation of the version 2 option.

199 Over the next six months, various revisions of the proposed share sale agreement were provided to Mr Tsialtas, in response to which he provided his comments.

200 There is an inconsistency between Connective's pleaded case and the evidence. The draft share sale agreement proffered by Mr Lees provided that the consideration due to Mr Tsialtas would be paid by Mr Haron within a period of five years and that, during this period, Mr Haron would pay an amount each financial year of at least 50% of the purchaser's annual profit distribution. The draft also provided for interest to be payable on the amount outstanding during each financial year. However, according to Connective's pleaded case, the purchase price was not to be paid unless and until the Connective companies or the business was sold.

201 On 28 June 2010 at 1:00pm, Murray Lees emailed Mr Butler (the Murray Lees 'text from Sof' email). In this email, Murray Lees advised Mr Butler that he had:

Received a strange text from Sof on Friday night, he was bitching about how we were treating him and that he couldn't fee his family! So the time would be ripe to talk to him we think. I replied via text saying that we were happy to talk to him once he fulfilled his obligation to transfer his portion of the shares due to MH. I have heard nothing from him since then. Can you please make contact with him to reiterate the message that we want the shares transferred. I know our game is to pay him out, but just want to apply some pressure and give him a little indicator that he does the right thing we might be able to pay him out.

202 The email is further evidence that the majority shareholders were seeking to buy Slea out at an undervalue.

203 As discussed above, the version 1 and version 2 emails were not discovered by the defendants in the oppression proceeding. They were only discovered in the Haron proceeding after an independent IT expert recovered them from deleted items.

204 There is no record of Mr Lees having responded in writing to the version 1 or version 2 emails. Mr Lees, however, immediately conducted himself consistently with version 2. After Murray Lees agreed with version 2, and only minutes before Mr Haron agreed in writing to the proposal in version 2, Mr Lees sent Mr Tsialtas a draft sale agreement for the transfer of shares to Mr Haron. This was the first draft provided to Mr Tsialtas, almost three years after the agreement was alleged to have been reached, and two years after a form of the proposed agreement was provided to Mr Lees by Macpherson Kelley.[3]

205 I am satisfied that Mr Lees, Murray Lees, and Mr Haron decided to pursue the version 2 strategy, with Slea transferring only a portion of its shares in the Connective companies and Slea continuing to hold 25%, but with Mr Lees, Murray Lees, and Mr Haron holding the remaining 75%.

206 In his evidence-in-chief, Mr Haron was asked to explain his response of 'very good' to the version 2 proposal. He initially said that those comments were merely addressing the timing of tax and capital gains issues. I did not accept this answer.

207 Under cross-examination, Mr Haron agreed that he understood the CGT issue involved Mr Tsialtas and Mr Lees being liable for CGT without receiving any cash, and also agreed that Mr Tsialtas would be disadvantaged (as Mr Tsialtas would presumably not be receiving money from the Connective companies, as Mr Lees would be, to meet the tax liability).

208 Mr Haron agreed that, if the version 2 proposal went through, he, Mr Lees, and Murray Lees would have 75% of the shareholding, which would entitle them to pass extraordinary resolutions that would enable them to issue a new class of shares to distribute profits to themselves and not Slea. Mr Haron agreed that they were planning to issue a new class of shares to do this, until they realised that they needed a 75% shareholding, or control of such, to issue the new class of shares.

209 Mr Haron agreed that implementation of version 2 provided him, Mr Lees, and Murray Lees with leverage and the ability to apply pressure to Mr Tsialtas, and then buy Slea's shares for a staggered payment of $500,000 over several years. Mr Haron said that this was what Mr Butler had outlined.

210 Mr Haron was taken to Murray Lees' response from the evening of 23 July 2009, in which he opted for version 2. Mr Haron agreed that when Mr Butler said that he would await final sign-off from everyone, before going to Mr Tsialtas, this meant that Mr Butler was waiting for responses from Mr Haron and Mr Lees regarding which of the version 1 or 2 strategies should be pursued by Mr Butler.

211 Mr Haron admitted that his response of 'very good' was an acceptance that the strategy in version 2 should be adopted, and that his previous explanation, which focused on his understanding of Mr Butler's comments regarding tax consequences was not correct.

212 Mr Haron agreed that Mr Butler had been asked to come up with options to put pressure on Slea and in response had devised the version 2 strategy. Mr Haron accepted that he, Mr Lees and Murray Lees had agreed to adopt the version 2 strategy which was to force Slea to sell 8.33% of its shares to Mr Haron, and then use Slea's diminished shareholding of 25% as leverage to obtain a depressed price for its remaining shares.

213 Mr Haron agreed that Mr Tsialtas had brought him into the business and, when things went awry, Mr Tsialtas had brought Mr Haron back to the table. Mr Haron agreed that he felt some guilt about that in his dealings with Mr Tsialtas.

214 Mr Haron agreed that, despite how he presented to Mr Tsialtas, he went along with Murray Lees and Mr Lees on the matter of not paying dividends to Slea. He agreed that he did so, despite knowing the financial difficulties that it would cause Mr Tsialtas, because he understood that he would benefit from it. Mr Haron agreed that when Slea was not getting dividends, he was getting increased management fees, and later directors' loans.

215 Mr Haron was taken to the email of 19 July 2009, from Mr Butler to Mr Burchartz of MacPherson Kelley, which copied in Mr Lees, Murray Lees, and Mr Haron. Mr Haron accepted that, in the email, Mr Butler was proposing the issue of A class shares to Mr Haron, Mr Lees, and Murray Lees to enable them to receive dividends but not Slea. Mr Haron agreed that they did not continue with the plan because they did not control 75% of the shares.

216 On 2 August 2009, Mr Butler emailed Mr Lees, asking if he had any thoughts on the two options concerning Slea's shares. I infer that Mr Lees had not previously responded to Mr Butler's emails about the two options, and obviously had not told Mr Butler that he had sent the draft share sale agreement to Mr Tsialtas (consistent with version 2).

217 Mr Butler informed Mr Lees that he had met with Mr Kirton from Macpherson Kelley in the previous week, and that they (presumably Mr Lees, Murray Lees, and Mr Haron) needed to get 75% of the Connective shares before they could issue a special class of shares. Mr Butler informed Mr Lees that, unless they (again, presumably Mr Lees, Murray Lees, and Mr Haron) held 75% of the voting rights, they needed Mr Tsialtas's agreement on issuance of a special class of shares.

218 On 7 August 2009, Mr Kirton emailed Mr Lees to ask him whether he had heard from Mr Butler. Mr Kirton also asked if Mr Lees wanted to discuss and 'bed something down' about the approach to Mr Tsialtas. Mr Kirton told Mr Lees that they could not adopt the share class strategy without either Mr Tsialtas's consent or a reduction of his shareholding.

219 It was put to Mr Lees that the price of $875,000 to purchase Slea's shares, as per Mr Butler's version 1 and version 2 proposals, was consistent with the instructions provided by Mr Lees, Murray Lees, and Mr Haron to Mr Butler. It was put to Mr Lees that Mr Butler did not come up with this amount 'out of the blue'. Mr Lees replied, 'I simply don't know.' Mr Lees said that he did not know if it surprised him, but it did now. When asked why, he said that the price was quite low, and unlikely to be accepted. Slea point to the fact that, on 20 August 2008, Mr Lees sent an email to Mr Haron and Murray Lees outlining the 'option-option proposal', which would give them an option to buy out Slea at $600,000, if they paid $100,000 each year for the next two years.

220 I did not believe Mr Lees was surprised by the suggestion of $875,000. It was put to Mr Lees him that this was the type of price that Mr Lees, Murray Lees, and Mr Haron were trying to extract from Slea. Mr Lees said that he did not accept that. He said that he did not think it was ever put to Mr Tsialtas.

221 Mr Lees responded to the proposition that he was trying to buy out Mr Tsialtas for a price substantially under market value, by saying that he did not think he would go that far. Mr Lees denied knowing that this was the object of Murray Lees and Mr Haron.

222 I am satisfied that Mr Lees was not telling the truth in giving that answer. Rather, I am satisfied that Mr Lees knew that Murray Lees and Mr Haron had expressly agreed to version 2 which encompassed the strategy of buying out Slea at an under value.

223 Mr Lees was asked about Mr Butler's comment that Mr Tsialtas had been left 'high and dry' after the 2009 agreement with Minerva had been set aside. Mr Lees initially claimed that he did not understand what 'high and dry' meant but ultimately accepted that it meant that Mr Tsialtas was left in a difficult position.

224 Mr Lees' initial attempts to maintain that he did not understand what 'high and dry' meant in relation to Mr Tsialtas, was further evidence of his dishonest attempts to avoid a finding that he supported Mr Butler's proposals to buy out Slea at an under value.

225 Mr Lees was similarly dishonest when he was asked about Mr Butler's observation used in the version 2 email - to 'leave Mr Tsialtas swinging'. Mr Lees said that he understood that expression to mean that 'we would just be in the position we would have been in had we completed the original deal', referring to the alleged Haron agreement, in which Mr Tsialtas's interest would be reduced to 25%. Mr Lees falsely said that there would not be any obstacle to Slea selling its remaining 25%. Under cross examination, however, after much hedging, and an instruction by the Court to Mr Lees to answer the question, Mr Lees conceded that '[left] Mr Tsialtas swinging' meant that Mr Tsialtas would be left in a disadvantaged position with no offer on the table.

226 It was put to Mr Lees that one of the ways in which Mr Tsialtas would be left disadvantaged was that, he, Mr Haron, and Murray Lees would control 75%, and therefore be able to pass special resolutions to issue a new class of shares that would enable them to pay dividends to themselves, but not Mr Tsialtas. Mr Lees agreed. Mr Lees admitted that he knew Murray Lees and Mr Haron had agreed with Mr Butler's enthusiasm for putting Mr Tsialtas in a disadvantaged position.

227 Mr Lees also admitted, under cross-examination, that he understood Mr Tsialtas would need their consent to sell the remaining 25% and, when reminded of his earlier answer that there was no obstacle to Mr Tsialtas selling his remaining 25%, Mr Lees said that he was thinking about the question in a slightly different way. I find that that this answer was indicative of the problem with Mr Lees' evidence, which is that he was constantly opting for answers that would assist him and advance his position, with little respect for the truth.

228 As noted above, Mr Butler actively proposed options where financial pressure could be placed upon Slea to enable the purchase of its shares by Millsave and Mr Haron, at a value below their true worth.

229 Mr Lees claimed that he did not agree with Mr Butler's proposed strategy in version 2 of 'leaving Mr Tsialtas swinging', or his suggestion of ways to push down the price for Mr Tsialtas's shares. Although Mr Butler was his adviser, Mr Lees was asked whether he rejected Mr Butler's ideas and the attitude that he was expressing. Mr Lees said yes, in some cases. Mr Lees was asked whether he thought that some of Mr Butler's suggestions were completely unfair. Again, Mr Lees agreed, in some cases.

230 Mr Lees was asked whether he had advised Mr Butler that he rejected his suggestions. Mr Lees responded that he did not know what he had told him. He said that: 'I would usually just ignore things that I didn't - just - just let it - let it go.'

231 It was put to Mr Lees, and he agreed, that he placed a great deal of value on Mr Butler's opinions, so much so, that he appointed Mr Butler as a director of his private company, Millsave, and as trustee of Mr Lees' family trust. Mr Lees confirmed that Mr Butler continues to act as a director of Millsave and as the trustee of Mr Lees' family trust.

232 Mr Lees claimed that he was appalled by Mr Butler's version 2 strategy. He agreed that Mr Butler had been expressing this strategy for some months. Nevertheless, Mr Lees agreed that he kept Mr Butler 'in the tent', and that Mr Butler continued to advise him on dealing with Mr Tsialtas and Slea. Mr Lees conceded that he could not remember telling Mr Butler that he was unhappy with his advice, and continued to use Mr Butler as his adviser, on and off.

233 It was put to Mr Lees that the idea that he was appalled by the things that Mr Butler was suggesting, and the reasons for those suggestions, was something that he had made up because it was convenient, and he thought that he could get away with it. Mr Lees said that was not true. It was put to Mr Lees that he had not behaved consistently with the view that he was appalled by what Mr Butler was suggesting to him. Mr Lees said that this was not true.

234 It was then put to Mr Lees that he never questioned Mr Butler's version 2 strategy or doubted it. Mr Lees said that he ignored the suggestion. I am satisfied that that Mr Lees' answer was a lie.

235 Mr Lees agreed that Murray Lees and Mr Haron both agreed with the version 2 proposal. Mr Lees claimed that he disagreed with the strategy proposed by Mr Butler in version 2. It was put to him in cross examination that he did. Mr Lees denied that he supported version 2. I did not believe him. Mr Lees produced no evidence to support his denial. I am satisfied that Mr Lees agreed with and supported the version 2 strategy.

236 On or about September 2009, Mr Lees met with Mr Boyle and Mr Rollason from Liberty at the RACV Club. In his evidence, Mr Boyle said that there was a discussion about Liberty potentially acquiring Slea's shares in Services and OSN, and that Mr Lees asked about Liberty's valuation of the Connective companies. Mr Lees agreed to provide details of the Connective companies' proposed strategic projects and forecasts.

237 On 5 October 2009, Mr Tsialtas emailed Mr Lees asking when he could expect to receive copies of the financial statements and returns for the Connective companies. Mr Lees replied, saying that returns would not be available until next year, when they were due to be lodged. At this stage, Mr Tsialtas had not received any financial statements since leaving the business.

238 On 12 October 2009, Mr Lees emailed a further draft of the share sale agreement to Mr Tsialtas, and asked him if he had time to go over it. The clause relating to payment of the purchase price remained unaltered, with payments to be made from the profit of the Connective companies.

239 On 15 October 2009, Mr Tsialtas and Mr Lees met to discuss the sale agreement and the shareholders' agreement. Mr Lees told Mr Tsialtas that the salaries of Mr Haron, Mr Lees, and Murray Lees had been increased to $23,000 per month.

240 Slea had been pressed to execute two different versions of the agreement with Mr Haron: a first version on 24 July 2009, and a second version on 12 October 2009. As discussed below, Slea was also pressed to execute a third version on 16 October 2009, a fourth version on 30 October 2009, and a fifth version on 15 December 2009. Only the third version reflects the agreement that the Connective companies allege was made on 10 October 2006.

241 On 16 October 2009, Mr Lees sent Mr Tsialtas a revised share sale agreement for the sale of 25% of Slea's shares in Connective to Mr Haron. The clause relating to payment of the purchase price remained unchanged. Under clause 16.2, Slea was free to assign receipt of payment and the associated security to Liberty, if all parties agreed to its future acquisition of Slea's remaining shares. The draft agreement still contained the terms that Macpherson Kelley had suggested should be included: namely, that there be a term of five years; that interest would be payable; and that 50% of the dividends would go towards reducing the purchase price. On 16 October 2009, Mr Tsialtas forwarded the revised agreement to Mr Boyle.

242 On 30 October 2009 at 4:20pm, Mr Tsialtas emailed Mr Boyle to inform him that Mr Haron was not prepared to pay a portion of dividends to repay the debt to the vendors. Shortly afterwards, at 4:50pm, Mr Lees sent Mr Haron the revised agreement.

243 At 4:57pm, Mr Lees sent a revised 'version 3' of the share sale agreement to Mr Tsialtas. Mr Lees informed Mr Tsialtas that Mr Haron would not accept a term requiring repayment of the purchase price prior to sale of the business. Mr Lees said that the revised version 3 reflected what Mr Lees, Murray Lees, and Mr Haron had agreed were the terms of the original agreement with Mr Haron.

244 Version 3 revised the clause relating to payment of the purchase price, which had previously specified a term of five years, interest payable, and 50% of the dividend to pay down the price. The proposed agreement now provided that, if the business was sold during the term, the purchaser would pay the full outstanding balance of the purchase price on settlement of the sale. If the purchaser sold all or part of the sale shares, then the purchaser was to apply all or such part of the proceeds from the sale against the balance of the purchase price. If Mr Haron ceased to be active in the business, other than for certain reasons, he was to pay the balance of the purchase price within 30 days.

245 At 5:49pm, Mr Tsialtas replied to Mr Lees, thanking him for the email, and stating that he would review the revised version 3 agreement. Mr Tsialtas asked Mr Lees to provide any documentation that detailed their combined discussions with Mr Haron at the time of his entry into the business, as he did not have access to any of the past emails from that time. Immediately, Mr Lees agreed to do so. Shortly thereafter, Mr Tsialtas asked Mr Lees for information on finding a lawyer to keep progressing the situation. Mr Lees recommended the Law Institute of Victoria.

246 On 27 October 2009, Mr Boyle contacted Mr Lees, and provided an undertaking to get something (presumably financial information) to Mr Lees. On 2 November 2009, Mr Boyle emailed Mr Lees requesting information that he said would help Liberty form a view upon which to progress discussions. The information requested included vision and strategic objectives, business plans, and detailed financial information.

247 Mr Lees replied that day to inform Mr Boyle that he would 'get cracking on it [that] week'. On 8 December 2009, over a month later, Mr Boyle emailed Mr Lees to follow up on the requested information. Mr Boyle asked if he could do anything to assist and suggested a meeting with Mr Butler. On 11 December 2009, they met and Mr Lees provided Mr Boyle with a balance sheet and profit and loss statements.

248 I find that Mr Boyle was genuinely seeking to engage with Connective and obtain information in order to try and negotiate whereas, Mr Lees was not genuine in relation to his engagement with Liberty.

249 Mr Lees represented to Slea that he was open to providing financial information on the Connective companies to Liberty, in order to assist Slea with the sale of its shares in Connective. I am satisfied that Mr Lees deliberately misled Slea. Contrary to his representations, Mr Lees was not, in fact, open to Liberty purchasing Slea's shares in the Connective companies; nor was Mr Lees prepared to make Connective's financial information available to Liberty, for the purpose of assisting Liberty to decide whether or not to purchase Connective shares.

250 In cross-examination, it was put to Mr Lees that he chose not to provide the information sought by Mr Boyle on behalf of Liberty and that, in fact, Mr Lees had no serious interest in Liberty making an investment in the Connective companies. Mr Lees sought to evade these questions. First, Mr Lees said that he thought they did not have a lot of the information sought by Liberty. Secondly, Mr Lees said that, by December 2009, his interest was beginning to wane.

251 Mr Lees said that his interest waned because he thought that the deal with Mr Haron was being delayed, and that Mr Tsialtas was not being genuine or genuinely seeking to enter into a share sale agreement.

252 In November 2009, Mr Boyle was still pursuing Mr Lees for information on the Connective companies, in the expectation of Liberty reaching an agreement with the Connective companies. At this stage, Liberty was proceeding on the basis that Mr Lees was genuine in his representations that Connective was open to Liberty reaching some sort of agreement with Connective.

253 On 10 November 2009, Mr Tsialtas emailed Mr Lees asking if there was any news on the financial statements. At this stage, Mr Tsialtas had not received any financial statements since May 2008, when he left the business. Mr Lees replied that he would get Mr Butler to provide them to Mr Tsialtas. On 12 November 2009, Mr Butler emailed Mr Tsialtas and said that he was happy to help with the financials, and that he needed to check with his manager. Mr Butler said that he would rather present the accounts in person to Mr Tsialtas and that would be a good time for Slea to transfer shares to Mr Haron to resolve the shareholding issue with Mr Haron,.

254 On the same day, Mr Tsialtas replied to Mr Butler, stating that he would be happy to go through the financials with Mr Butler. However, Mr Tsialtas also mentioned that he would like a full set for his records, and that these could be emailed to him. As for the shareholding issue, Mr Tsialtas said that he was waiting on Mr Haron and Mr Lees to provide him with additional information, before they could continue with this process.

255 Mr Lees then prepared a draft email response to Mr Tsialtas, which he sent to Mr Butler for his comments at 5:53pm on 12 November 2009. In the draft email, Mr Lees wrote that he had searched his inbox and archives, and did not have any record of email communications with Mr Haron around the time that they had made their deal with him. Mr Lees said that he had the documentation that they had received from Macpherson Kelley concerning the draft agreements and the tax advice. Mr Lees said that the tax advice was, of course, couched in terms of how the transaction should be structured so that they did not pay CGT until such time as the business was sold (fully or partly), on the assumption that they would not receive payment from Mr Haron until these events occurred. Mr Lees continued that he had also contacted Mr Kirton to ask him to review his files.

256 On 16 November 2009 at 11:02am, Mr Kirton emailed Mr Lees and attached various emails that he suggested might be relevant. These included an email of 11 October 2006, which attached a summary of what Mr Kirton and Mr Lees had discussed on 10 October 2006 (the day of the alleged agreement with Mr Haron).

257 The summary was headed 'Connective Group Possible Transaction Structure', and records that Mr Kirton and Mr Lees had discussed a share issue to Mr Haron, not a share sale. The share issue to Mr Haron would comprise a different class of shares to ensure that, on sale of the business, the proceeds of these shares would go to meet the $875,000 owed by Mr Haron. There was no reference to a share sale at all in the discussion of the possible transaction structure.

258 On 16 November 2009 at 1:29pm, Mr Butler responded to Mr Lees' email of 12 November 2009, to remind Mr Lees that CGT would be payable on the share transfer, not receipt of payment.

259 On 15 December 2009, Mr Lees sent Mr Tsialtas a fifth version of the proposed share sale agreement with Mr Haron. He also informed Mr Tsialtas that he did not have any email correspondence from the time of Mr Haron's entry into the business, but he did have Mr Kirton's documents. Mr Lees advised Mr Tsialtas that the correspondence confirmed that Mr Haron was to be issued shares with no obligation to pay for them until the business was sold. Mr Tsialtas forwarded the draft agreement to Mr Boyle on the same day.

260 I find that, at this time, Mr Tsialtas was still hoping to sell Slea's shares to Liberty and that he thought, correctly, that Liberty was engaging with the Connective companies to try and reach an agreement that would permit Mr Tsialtas to sell Slea's shares to Liberty.

261 Under the fifth version of the agreement with Mr Haron, Mr Tsialtas could assign the agreement, or the rights under the agreement, with the written consent of each party. Accordingly, if the other parties consented, Mr Tsialtas could assign the money owed by Mr Haron for the purchase of his shares in Connective to Liberty, if it purchased Slea's shares. In his 15 December 2009 email to Mr Tsialtas, however, Mr Lees advised that Mr Haron's solicitors had not agreed to the clause allowing Liberty to purchase the right to receive funds.

262 I am satisfied that, at this time, Mr Lees, Murray Lees, and Mr Haron had no interest in reaching any agreement with Liberty, and also had no interest in assisting Mr Tsialtas to sell Slea's interest in the Connective companies to anybody other than themselves, despite any suggestion by them to the contrary.

263 I find that Mr Tsialtas was misled into believing that completing the Haron transaction was a prerequisite of being permitted to sell Slea's shares to Liberty. For example, as mentioned above in Mr Tsialtas's 14 June 2009 email to Mr Lees, which confirmed the content of their meeting earlier that day, Mr Lees had stated that resolving the issue with Mr Haron's shares was a precondition to Mr Tsialtas's exit from the business. I am satisfied, however, that the defendants had no intention of permitting Slea to sell its shares to anybody but themselves.

264 On 21 December 2009, Mr Boyle and Simon Russell from Liberty had a telephone discussion with Mr Lees, in which they discussed how Liberty could bring value to Connective. A couple of days later, Mr Boyle said that he had provided a document entitled 'Proposed Strategic Alliance' to Mr Lees. Mr Lees confirmed that Mr Boyle gave this document to him just before Christmas in 2009, when they had a meeting in furtherance of discussions about a potential commercial tie-up between Connective and Liberty.

265 On 8 January 2010, Mr Boyle emailed Mr Lees to follow up after their last chat. He said that Mr Russell of Liberty had sought to contact Mr Butler. Mr Boyle said that when Mr Russell obtained the information that he needed from Mr Butler, then Mr Boyle should be able to provide a view on valuation (presumably the 25% interest that Slea had in the Connective companies, after transferring the balance to Mr Haron) as he and Mr Lees had discussed previously. In the meantime, Mr Boyle asked that, if anything else came up in regard to the two pages, Mr Lees would let him know. Mr Boyle also said that he thought Mr Lees was going to check with Mr Haron on the sensitivity regarding the outstanding debt.

266 On 20 January 2010, Mr Lees emailed Mr Boyle to advise that, having read through the pages provided by Mr Boyle, they would require a transfer mechanism enabling them to act as an intermediary for the sale of Slea's 25% holding in the Connective companies to Liberty - that is, Slea would first sell the parcel of shares in the Connective companies to them, and then they would sell the parcel of shares to Liberty. Completion of the share transfer from Slea to Mr Haron beforehand would also be a requirement. Mr Lees said that sale of the debt by Slea to Liberty would not be acceptable.

Hi Glenn, Thanks for the email. Are you planning a restructure as part of the transaction? Seems like a long way to get to the outcome. Anyway, if that's your preference I'm sure we can work with it. I'll take a crack at incorporating it into our Strategic Alliance document but I did have a couple of questions beforehand[.]

268 If Mr Lees was genuinely seeking to have shares transferred to Mr Haron, and was content to allow Mr Tsialtas to transfer the balance of Slea's shares to Liberty, then it made no sense for Mr Lees to insist that, first, Mr Tsialtas had to transfer all of Slea's shares to Connective before he would be allowed to transfer Slea's shares to Liberty.

269 When pressed about this, Mr Lees said that he was insisting on that process, so that he could control it. However, when pressed further, he accepted that he already controlled the process, as under the pre-emptive provisions, Slea could not transfer its shares to Liberty before offering them to Millsave. It was put to Mr Lees, in cross-examination, that his proposal had nothing to do with controlling the process. Mr Lees said that it was so they could have full visibility. It was put to Mr Lees that he could not offer any rational process, other than trying to take advantage of Slea.

270 It was put to Mr Lees that he was trying to have Slea's shares transferred to himself, before they could be transferred to anybody else, and that Mr Lees could then refuse to transfer the shares. Mr Lees admitted that this was a possibility, but when it was suggested to him that this was exactly what he intended to do, he replied, 'ah, no, I don't think so'. It was put to Mr Lees that his plan was to have Slea transfer 25% of its shares to Mr Haron, and then the balance to him, which was the version 2 strategy. Mr Lees accepted that proposition, saying: 'Ah, yes, it accords with that.'

271 It was put to Mr Lees that, as part of seeking to achieve version 2, he was prepared to mislead Liberty and Mr Boyle in the hope of achieving that aim. Mr Lees denied that, and said that he was genuinely interested in knowing what Liberty had to offer. It was put to Mr Lees, in cross-examination, that this could not be true, as he wrote to Mr Butler on 12 January 2010, and said that: 'I wouldn't waste too much time seeing him I don't think - what does he need to know?' Mr Lees said that he thought Mr Hodge, the cross-examiner, was referring to an earlier period of time.

272 I am satisfied that there is no rational reason why there should be an insistence that Slea transfer its shares to the Connective companies, before those shares could be transferred to Liberty, other than that Mr Lees, Murray Lees, and Mr Haron were intent on trying to get hold of Slea's shares for themselves. This objective is consistent with the version 2 strategy.

273 Slea refers to Mr Lees' denials that his purpose had been to place financial pressure on Slea to try and force it to sell at a depressed price to the other three, and his denials that he was insisting on the share transfer to ultimately be able to place pressure, obtain leverage, and cause the issuing of shares, and says that these should be disbelieved. I find Mr Haron's evidence and admissions, and the inferences obviously available on the documents, should be accepted.

274 I am satisfied that Mr Lees was no longer interested in Liberty becoming an investor, but was in reality trying to achieve the version 2 strategy.

275 In June 2010, Mr Tsialtas sent a text message to Murray Lees stating that the continued delay in the sale of Slea's shares was prolonging his financial difficulties. On 28 June 2010, Murray Lees emailed Mr Butler to advise him of the text message and suggested that 'the time was ripe' to talk to Mr Tsialtas. Murray Lees asked Mr Butler to 'make contract with [Mr Tsialtas] to reiterate the message that we want the shares transferred', also stating that 'I know our game is to pay him out, but just want to apply some pressure and give him a little indicator that if he does the right thing we might be able to pay him out'. This is further evidence supporting the allegation that Mr Lees, Murray Lees, and Mr Haron decided that they would seek to remove Slea as a shareholder in the Connective companies.

276 As a consequence, on 2 July 2010, Mr Butler emailed Mr Tsialtas, referring to Mr Tsialtas's contact with Murray Lees. In the email, Mr Butler referred to the Haron agreement, and requested that Mr Tsialtas transfer the required shares to Mr Haron before 1 July 2010. On 4 July 2010, Mr Tsialtas responded to Mr Butler stating that he was still waiting for the completed agreement detailing the terms regarding the transfer of shares. It will be recalled that various drafts prepared by Macpherson Kelley had been sent to Mr Tsialtas in the past.

277 In his email, Mr Tsialtas again raised the failure of the Connective companies to provide him with copies of financial statements and the directors' report for the year ended June 2009. Mr Tsialtas also asked for the financial statements and the directors' report for 2010, referring to his right to such information under the constitutions of the companies and the Corporations Act 2001 (Cth) (Corporations Act, or The Act, unless otherwise specified). I subsequently deal in detail with the many attempts that Slea made to obtain copies of the accounts of the Connective companies.

278 On 5 July 2010, Mr Butler responded to Mr Tsialtas. Mr Butler again asserted that Mr Tsialtas should 'carry out' the alleged Haron agreement, and linked the execution of those documents to Mr Tsialtas being given the opportunity to review the financials of the Connective companies.

279 At this time, Mr Tsialtas's financial position had further deteriorated and he entered into an agreement with Minerva, referred to as the accommodation agreement (accommodation agreement), which provided him with financial relief and gave Minerva (Liberty) certain rights, as discussed below.

The accommodation agreement between Slea and Minerva (Liberty)

280 On 12 August 2010, Minerva and Slea entered into an accommodation agreement, and Slea executed a guarantee and indemnity in favour of Minerva. Under the accommodation agreement, Minerva obtained the right to purchase Slea's interest in the Connective companies. Minerva also agreed to pay $575,000 to Slea in consideration for Slea entering the agreement with Minerva. At this stage, neither Connective nor Mr Lees had agreed for Liberty to become a shareholder of Connective.

281 The arrangements between Slea and Liberty, or its subsidiary Minerva, have been relied upon by the Connective companies to justify some of the behaviour that Slea alleged was oppressive. In particular, as discussed below, the defendants contend that Slea was and remains Liberty's puppet, or a 'stalking horse', for Liberty to take over the Connective companies. The defendants also contend that Liberty should not be able to use Slea's oppression proceedings to acquire the majority interest of Millsave and Mr Haron in the Connective companies, particularly where the enormous increase in value of the Connective companies has been due to the efforts of the current majority owners. The Connective companies were valued at about $3 million when Mr Tsialtas resigned as a director in 2008, and at the time of trial were valued at about $120 million.[4]

282 Under the accommodation agreement, recital A stated that Slea owned an interest in OSN and Services, and recital B stated that the other shareholders owned the majority interest in OSN and Services. Recital C stated that Minerva was interested in providing financial support to Slea and Mr Tsialtas, and in purchasing an interest in OSN and Services in future. Also under recital C, Slea, Minerva, and Mr Tsialtas had agreed on a process to be followed, should the circumstances arise that would enable the purchase of a part or all of the shares in Services and OSN.

283 Clause 1.1 acknowledged the shareholders' pre-emptive rights. Under cl 1.2, Slea agreed that it would take all reasonable steps to strengthen its shareholding in the Connective companies and prevent any attempts by the directors, or the majority shareholders, to weaken Slea's shareholding and its rights in respect of the shareholding. Under cl 1.3, Slea agreed that it would take all reasonable steps necessary to exercise its pre-emptive rights, should the majority shareholders offer all or part of their shareholding in the Connective companies, and to exercise its new issue share rights if new shares were issued.

284 In cl 1.4, Slea agreed to refuse to sell its shareholding in Services and OSN to the majority shareholders, or any other third party proposed by the majority shareholders, without the express written consent of Minerva. In cl 2, there are a series of provisions dealing with circumstances in which Slea is able to take advantage of its pre-emptive rights or new issue share rights. In those circumstances, whether relating to a full or partial purchase, it would be possible for Slea to obtain funding with Minerva in order to purchase those shares.

285 Clause 2.2 defined a full purchase rights offer as one where all of the shares in the Connective companies held by the majority shareholders were offered. Where this occurred, cl 2.4 provided that Slea and Minerva were to work together to determine whether the full purchase rights offer was reasonable. If either of them determined that it was reasonable, then, in seven days, Minerva would advise Slea in writing as to whether it would exercise an irrevocable option to purchase 100% of Slea's shares in the Connective companies, once the shares held by the majority shareholders had been transferred to Slea.

286 The accommodation agreement did not provide that Slea had agreed to sell its shares to Liberty; that is, its one-third shareholding in the Connective companies, together with any additional shares that it purchased in the companies. Clause 2.4.1 provided that: 'Slea will take all steps necessary to ensure that Majority Shareholders effect the transfer of its Shares in the Asset to Slea together with all benefits, rights and entitlements accrued or attaching to the Shares, free from any encumbrances, security or third party interest'. Those shares (that is, the shares transferred from the majority shareholders to Slea) are defined as Slea's extended shareholding.

287 Then, in cl 2.4.2, Minerva agreed to loan the full amount of the purchase price required to buy the majority shareholders' shares, which is defined as the loan amount, to Slea. In cl 2.4.3, Minerva agreed not to charge interest or fees on the loan amount for a period of three months from settlement of the loan, provided that, prior to the three months from the settlement of the loan, Slea transferred 100% of its extended shareholding in the Connective companies to Minerva. As such, it was not 100% of all Slea's shares in OSN and Services at the time, but 100% of the extended shareholding, which refers to the additional shares that Slea could obtain in an exercise of its pre-emptive rights.

288 Clause 2.4.3 goes on to provide that, together with the extended shareholding, Slea would transfer 'all benefits, rights and entitlements accrued or attaching to the shares, free from any encumbrances, security or third party interest', which were defined as collateral shares. The collateral shares are the same thing as the extended shareholding - that is, additional shares over and above Slea's 33.3% shareholding in the Connective companies.

289 Clause 3.1 dealt with what happened under settlement. It provided that, '[s]hould Slea exercise its Pre-emptive Rights under clause 1 above and Minerva exercise its rights under clause 2.4 above then in that event, and within 7 days of Slea obtaining Slea's Extended Shareholding, Slea will transfer ownership of the Collateral Shares to Minerva or an entity nominated by Minerva'. Then, in cl 3.1.2, 'Slea will deliver to Minerva all share certificates in respect of the Collateral Shares together with all other Documentation necessary to effect the transfer of the Shares to Minerva or its nominated entity.'

290 In substance, on settlement, Slea would transfer the collateral shares (also the extended shareholding) to Minerva, but retain its existing shareholding in OSN and Services. The consideration that Slea received from the transfer to Minerva was provided for in cl 4.1. Clause 4.1 provided that Minerva agreed to pay $575,000 to Slea to indemnify it against any legal costs necessarily incurred in relation to its pre-emptive rights and new issue rights.

291 There were some subsequent modifications to the agreement because, at this stage, there were no legal proceedings on foot, and the restructure and sale to Macquarie had not yet occurred.

292 As stated earlier, the Connective companies claim that the accommodation agreement effectively turned Mr Tsialtas into a captive of Liberty.

293 My reference to the Connective companies, rather than the defendants, is due to the fact that the defendants were represented by three sets of counsel. Mr Solomon for the Connective companies made the submissions to which I am referring. Mr Collinson, who appeared for Millsave, expressed reservations in his final address about characterising the Connective companies as puppets of Liberty. Mr Haron did not seek to distance himself from the submissions of Mr Solomon.

294 The Connective companies claim that Mr Tsialtas is a puppet of Liberty, and that this action is being brought by Slea at the behest of Liberty, and under Liberty's control. The Connective companies' case is that the litigation is being progressed to further Liberty's objectives, which are first, to obtain control of the Connective business, and secondly, to avoid the operation of the pre-emptive rights provisions in Services' constitution.

295 The Connective companies contend that Liberty's objective is central to the case for two reasons. First, the Connective companies submit that, if they make good that objective, it would render obvious what the correct relief was (that is, whether the majority or the minority should purchase the others' interest in the Connective companies), and provide relevant context for the Court to evaluate the complaints made against Connective in the statement of claim in the oppression proceeding.

296 The Connective companies say their case is that, from the execution of this agreement, if not before, Liberty has been pursuing its objective to obtain control of the Connective companies by wrapping Slea 'in a bear hug', and deploying Slea as its puppet, in order to secretly take over the Connective business through Slea. Connective alleges that Mr Tsialtas acts under the control, and at the direction of, Liberty. The Connective companies also allege that the Slea litigation is a charade.

297 The Connective companies submit that their contention that Slea is a mere puppet of Liberty is central to the proposal by Slea that it buy out the majority, and its resistance to the usual order that the majority purchase the minority.

298 Before continuing, I should flag another major issue in this case, which is the credit of Mr Lees. There were a number of issues on which his credit was challenged. Slea submitted that Mr Lees was a 'liar' and that, on contentious issues, he should not be believed unless his evidence could be corroborated. I accept the substance of Slea's submission on Mr Lees' credit. I have outlined my reasons for doing so elsewhere in this judgment; however, at this point, it suffices for me to say that I did not accept his evidence on key issues and I found him to be untruthful. On contentious issues, I have not accepted Mr Lees' evidence, unless it has been corroborated by other evidence. My observations of Mr Lees' demeanour and behaviour in the witness box, over several days, factored into the adverse findings that I have reached on his credit.

299 Relevant to Mr Lees' credit, Slea queried his evidence regarding correspondence sent to Mr Lees which he purported to have forwarded to Mr Tsialtas in December 2009. The correspondence included a draft shareholders' agreement, a deed of confirmation, and a letter to the client dated 15 May 2007. Mr Lees agreed, however, that he omitted to send one of the documents received, being tax advice on division 7A.

300 The division 7A information concerned the issue of shares to Mr Haron, rather than the sale of shares to Mr Haron. An issue of Connective shares to Mr Haron at no cost, rather than Mr Haron buying shares from Slea, would have been financially disadvantageous to Mr Haron, with the issue treated as a dividend under division 7A, but financially advantageous to Slea. In contrast, a sale of shares by Slea to Mr Haron, which Mr Lees was pressing, would have been financially disadvantageous to Slea, as it would not be paid for the shares until the business was sold.

301 On 29 October 2010, Wisewould Mahony Lawyers (Wisewould Mahony) wrote to Slea, on behalf of Millsave and Mr Haron, alleging that Slea had entered into a binding verbal agreement (the alleged Haron agreement) with Millsave and Mr Haron, whereby Slea and Millsave each agreed to sell 25% of their respective shareholding in Services and OSN to Mr Haron. The letter threatened legal proceedings if Slea did not sign documents transferring shares to Mr Haron.

302 Millsave and Mr Haron alleged that the binding verbal agreement was documented in the share sale agreement drafted by Macpherson Kelley. The letter also enclosed a resolution to be executed by Slea for the Connective companies to issue more shares, as well as share transfer forms. It was said that these would enable Mr Tsialtas to transfer 150 shares in each of the Connective companies to Mr Haron. Mr Tsialtas declined to execute the enclosed documents.

303 On 15 December 2010, Mr Tsialtas responded to Wisewould Mahony, stating that he had discovered that the Connective companies had established a new company called Connective Credit Services Pty Ltd (Credit Services). Mr Tsialtas said that he was concerned that this might have the potential to diminish Slea's interest in the Connective companies. Mr Tsialtas asked for an undertaking from Millsave and Mr Haron that this recent activity did not diminish the value of Slea's interest, and that there remained a commitment to fairly preserve the interests of the companies and all shareholders. If this undertaking was provided, Mr Tsialtas said that he would be happy to attend and meet with Millsave and Mr Haron.

304 On 16 December 2010, Wisewould Mahony replied to Mr Tsialtas's letter. They noted Mr Tsialtas's request for an undertaking as a precondition to his attendance at a conference with Millsave and Mr Haron. They said that, although the establishment of Credit Services was entirely unrelated to the current dispute (which they said solely related to the transfer of shares in the Connective companies), as a gesture of goodwill, Millsave and Mr Haron were prepared to give the undertaking which Mr Tsialtas sought.

305 There were two components to the undertaking. One was about the establishment of Credit Services not diminishing the value of Slea's interest. The second was that there remained a commitment to fairly preserve the interests of the Connective companies and all shareholders. Wisewould Mahony were unsuccessful in obtaining Mr Tsialtas's agreement for the Connective companies to issue new shares.

306 On 7 March 2011, Slea received notice of an AGM for the Connective companies to be held on 1 April 2011. According to the AGM notice, resolutions would be proposed to increase the shares held by Millsave and Slea. The Connective companies' financial statements and the payment of dividends would also be discussed. In his written statement, the admission into evidence of which is discussed below, Murray Lees stated that his intention at the AGM, together with that of Mr Lees and Mr Haron, was to put pressure on Mr Tsialtas by announcing that no dividends would be declared until the shareholding issue with Mr Haron was resolved.

307 That intention evidenced itself in correspondence following the notice. On 19 March 2011, Mr Tsialtas emailed Mr Lees, asking for financial statements and details of any proposals that the Connective companies intended to make with regard to the payment of a dividend. On 21 March 2011, Mr Lees replied to Mr Tsialtas and, as requested, attached the financials for 2008 and 2009. Mr Lees also informed Mr Tsialtas that there were no details for the proposal to pay dividends; it was simply to be discussed. Similarly, Murray Lees told Mr Tsialtas that, '[t]he agenda is fairly simple, ie the transfer of shares to Mark ... Once the transfer is done we can talk about dividends or the sale of the balance of your shares to us ...'.

308 On 30 March 2011, Mr Lees provided Mr Tsialtas with the 2010 'special purpose [financial] reports' for the upcoming AGM. On the same day, Mr Tsialtas replied to Mr Lees' email, asking a series of questions about the accounts. These included a query as to why the accounts were called 'special purpose reports'. On 31 March 2011, Mr Lees replied to Mr Tsialtas. He attached a purported explanation provided to him by Wellingtons in response to Mr Tsialtas's queries. In the explanation, Wellingtons said that 'special purpose reports' were defined in APES 205 Conformity with Accounting Standards, and Mr Tsialtas should refer to this. Mr Tsialtas was not provided with a proper explanation of how 'special purpose reports' differed from normal accounting reports.

309 The failure by the Connective companies to provide proper accounts to Slea and the creation of so-called 'special purpose reports' is addressed below in Part 2 of the judgment.

310 At the Connective companies' AGM held on 1 April 2011, Mr Tsialtas attended with Helen Joyce from Baker & McKenzie, his solicitors at the time. Mr Lees was also present.

311 As chairperson, Mr Lees informed the meeting that the Connective companies had approximately $1.6 million of retained earnings. Mr Lees noted that, while Services was keen to pay a dividend, a dividend would not be paid until the proposed shareholding of Mr Haron was rectified.

312 At the meeting, resolutions on the issue of new shares were passed by Millsave in a majority affirmative vote (with Slea abstaining). The new shares constituted a proportional increase in the shareholdings of Millsave and Slea.

313 Draft minutes for the 1 April 2011 meeting were subsequently provided to Mr Tsialtas. Mr Tsialtas disagreed with them. Ms Joyce marked up the draft minutes with amendments (the marked-up minutes), which accorded with notes taken by Ms Joyce at the meeting, and sent them to Mr Lees on 20 April 2011.

314 The marked-up minutes recorded that the following questions were asked by Mr Tsialtas at the meeting and answered by Mr Lees. Mr Tsialtas asked about loans recorded in the financial statements. Specifically, the marked-up minutes record Mr Tsialtas asking why the loans to related parties in the 2009 accounts were different to those recorded in the 2009 column of the 2010 accounts. This discrepancy is examined in Part 2 of the judgment.

315 Mr Tsialtas asked why directors' fees were being paid to Mr Haron and Murray Lees when they were not directors, to which Mr Lees responded that 'they exert work in the business'.

316 Mr Tsialtas queried the identity of the Lees Family Trust, Googleflex Family Trust, Millsave Trust, and Halogenics Pty Ltd. Mr Lees replied that the Lees Family Trust was Murray Lees; the Googleflex Family Trust was Mark Haron; the Millsave Family Trust was Mr Lees; and Halogenics Pty Ltd was a company in which the Connective companies held shares. I infer that, where the minutes record Mr Lees saying that an entity 'is' one of these individuals, Mr Lees meant that the entity held moneys for the benefit of that individual.

317 Mr Tsialtas asked for the purpose of the loans shown in the reports, and enquired as to whether the loans were paid in lieu of salaries. Mr Lees is recorded as saying that he did not feel qualified to answer. Mr Lees confirmed that loan agreements were in place for all entities, at arm's length, and on commercial terms with 8% interest. The marked-up minutes record that Mr Tsialtas asked why loans had almost doubled since 2009. Mr Lees cited the increased performance of the business as a response.

318 Mr Tsialtas also asked about the role of Credit Services. Mr Lees said that the company should have been a wholly owned subsidiary of OSN, and that he would arrange for the shareholding to be 'fixed up' so as to reflect the same shareholding as Services and OSN.

319 After the AGM, Murray Lees met with Mr Tsialtas and proposed that, if Mr Tsialtas executed the share transfer to Mr Haron, then the Connective companies would pay him a dividend.

320 On 11 April 2011, Mr Lees emailed Mr Tsialtas with further answers to the latter's questions from the AGM. Mr Lees informed Mr Tsialtas that loans made by the Connective companies to Mr Lees, Murray Lees, and Mr Haron had commenced in 2009, and had fluctuated as the ability of the company to pay market competitive remuneration to key principals had increased.

321 As discussed below in Part 2 of the judgment, Slea submits that the Connective companies were using loans to distribute profits to Mr Lees, Murray Lees, and Mr Haron but not Slea, as they could not affect their original plan to issue special dividend-paying shares to themselves and exclude Slea.

322 On 15 April 2011, Adam Rich of Wisewould Mahony wrote to Mr Tsialtas on behalf of Mr Haron, and requested that Slea execute the enclosed documents drafted to transfer 150 shares held in each of Services and OSN to Mr Haron or his nominee by 29 April 2011. Mr Rich warned Slea that, if it failed or refused to do so, then legal proceedings would be instituted against it.

323 On 19 April 2011, Baker & McKenzie wrote to Mr Lees, on Slea's behalf, with questions concerning four matters arising from the Connective companies' AGM. First, Mr Lees' refusal to pay a dividend of approximately $1.6 million to shareholders in circumstances where there was no legal basis for that refusal. Secondly, the use of Mr Lees' position as the sole director of the Connective companies to pay himself fees, where such fees might not be in the best interest of the companies. Thirdly, payment of directors' fees to the non-directors, Murray Lees and Mr Haron, by way of loans, where such payments were not in the best interests of the Connective companies. Fourth, Mr Lees' decision not to incorporate Credit Services as a subsidiary of OSN.

324 Baker & McKenzie contended that these actions were in breach of Mr Lees' duties to the shareholders of the Connective companies. Baker & McKenzie asked Mr Lees to fully respond to the questions set out in its letter. A substantive response was not received.

325 On 5 May 2011, Mr Haron commenced proceedings in the Supreme Court of Victoria to enforce the alleged agreement that he had with Slea and Millsave for a 25% interest in each of the Connective companies (the Haron proceeding, referred to above). The statement of claim alleged that, on 10 October 2006, the parties had reached a final agreement for Slea and Millsave to sell 25% of the shares in Services and OSN to Mr Haron. Slea defended the Haron proceeding, whereas the Connective companies and Millsave did not file defences.

326 In July 2011, Graham Maloney was appointed as a director and as chairman of the boards of the Connective companies. Mr Maloney plays a significant part in the events that follow.

327 Mr Tsialtas says that, on 19 July 2011, he received a press release advising that the Connective companies had appointed a new chairman of the board. Mr Tsialtas said that, prior to Mr Maloney's appointment, he was not aware that Mr Maloney was being considered for this role.

328 On or about 1 August 2011, Mr Tsialtas received a notice of a general meeting for the Connective companies which was scheduled to be held on 26 August 2011. The agenda included the appointment of Mr Haron and Mr Maloney as directors of the Connective companies.

329 On 15 August 2011, Slea commenced the oppression proceeding against the Connective companies, Millsave, and Mr Haron. Slea sought orders, inter alia, under s 233 of the Corporations Act that Services recover directors' fees paid to Mr Haron and Murray Lees; that Services declare and pay a dividend out of declared profits; that Services rectify its books and records; and that Mr Haron and Mr Maloney be removed as directors from the boards of the Connective companies. The oppression proceeding largely lay dormant while the Haron proceeding ran its course.

330 On 16 August 2011, Mr Haron and Millsave settled the Haron proceeding as between themselves, pursuant to a deed of settlement and release (the Millsave deed of settlement). Mr Haron and Slea did not settle at that stage.

331 Clause 2.1 of the Millsave deed of settlement provided that Millsave would perform its obligations under the agreement and transfer 300 of its shares held in each of the Connective companies to Mr Haron, in the event that: (1) the Court made an order in the proceeding for Slea to transfer its shares to Mr Haron, and the order was not successfully appealed; or (2) Mr Haron entered into an agreement with Slea, pursuant to which Slea transferred its shares to Mr Haron.

332 On 26 August 2011, the Connective companies held AGMs. At these meetings, Mr Maloney and Mr Haron were appointed as directors of the Connective companies over Slea's objections.

333 On 11 November 2011, Mr Maloney wrote to Mr Lees and Mr Tsialtas with a dividend proposal. The letter annexed Mr Lees' signed version of the minutes of the AGM held on 1 April 2011. Mr Maloney proposed that a dividend be paid, but not in respect of 25% of the shares each held by Slea and Millsave. Mr Maloney proposed that the dividend in respect of 25% of their shares would be held in a trust account, on the basis that it should await determination of the Haron proceeding.

334 On 14 December 2011, Mr Maloney's proposal was rejected by Slea's solicitors, Baker & McKenzie. They said that, while the dividend proposal might seek to mitigate the effects of the ongoing oppression of Slea, Baker & McKenzie did not interpret the dividend proposal as an attempt to settle any part of the oppression proceeding. Rather, Baker & McKenzie said that Slea considered the failure of Services and OSN to pay dividends to Slea as a ground of ongoing oppression. They said that the dividend proposal compounded that oppression, because it sought their client's consent to divert monies to a third party which should properly be payable to Slea, in order to protect a disputed claim that had not yet been heard, let alone decided. Baker & McKenzie concluded that Slea did not accept the dividend proposal and regarded it as an attempt at further oppression.

The funding agreement between Slea and Minerva

335 In March 2012, Slea and Minerva entered into a new agreement (the funding agreement) to finance Slea's costs of the litigation with the Connective companies, their shareholders and directors. Minerva is a related body corporate of Liberty. The funding agreement noted that Slea was involved in the Haron proceeding and the oppression proceeding brought by Slea.

336 As discussed above, the Connective companies have sought to characterise Slea as merely the puppet of Liberty, and to rely on the role of Liberty in defence of their actions.

337 In March 2012, the Connective companies began discussions with Macquarie about the sale of an interest in the Connective companies to Macquarie. Before a sale could take place, the Connective companies needed to restructure. Slea contends they needed to restructure to circumvent the pre-emptive rights provisions in the constitutions of Services and OSN. The defendants, on the other hand, contend, inter alia, that they restructured to achieve a single point of entry for possible investors; to alleviate accounting issues; or to achieve the sale of a portion of the business to Macquarie or another buyer. The legality and purposes of the restructuring are discussed in detail in Part 3 of the judgment.

338 The initial discussions with Macquarie did not lead to a sale. In April 2012, the Connective directors had discussions with Yellow Brick Road Holdings Ltd (Yellow Brick Road) about the latter taking an interest in the Connective business. The discussions were unfruitful.

339 Between December 2012 and October 2013, the Connective companies were restructured by incorporating a subsidiary of Services and OSN (namely, Group), and transferring the Connective business to Group and its subsidiaries.

340 By transferring the Connective business to Group and its subsidiaries, the directors created a means through which Macquarie could take an interest in the Connective business without taking shares in the parent companies, Services and OSN. Macquarie could, and did, take a 25% interest in Group, and thus avoided the pre-emptive rights provisions in Services and OSN.

341 As stated above, by early 2013, the restructure of Connective was largely complete, with the Connective business having been transferred to subsidiaries of Group. At this stage, the Haron proceeding had settled as between Mr Haron and Millsave, but continued as between Mr Haron and Slea.

342 In 2013, Slea was seeking discovery in the Haron proceeding from Mr Haron and the Connective companies, but had met with strong resistance. As discussed below, in Part 3 of the judgment, Slea contends that, despite their duties of discovery, the Connective companies and Mr Haron deliberately concealed the documents disclosing the restructure and transfer of the Connective business to Group and its subsidiaries from Slea.

343 The allegedly flagrant failure by the Connective companies and Mr Haron to give proper discovery is relevant to the allegations by Slea that the restructure and sale constituted oppressive conduct under the oppression proceeding, and a breach of duty by the directors in the derivative proceeding. Part 3 of the judgment discusses this.

Negotiations with Macquarie recommence in April 2013

344 In April 2013, the Connective companies recommenced discussions with Macquarie about the sale of an interest to Macquarie in the Connective business. By this time, the restructure of the Connective business had been substantially completed.

345 In June 2013, there were discussions with Macquarie about the price that the Connective companies were seeking for the 25% interest in the Connective business. Macquarie was aware that the price being asked was not part of a competitive bidding process.

346 On 3 July 2013, James Casey of Macquarie emailed Mr Maloney, who was then chairman of the Connective companies, observing that the restructure was not quite what they had imagined. Mr Casey said that the restructure went to the heart of litigation currently underway; namely, the pre-emptive rights proceeding, and the oppression proceeding commenced by Mr Tsialtas. Mr Casey sought a meeting with the lawyers for the Connective companies. I infer that Macquarie was concerned about whether the restructure that had been undertaken would insulate them from the consequences or outcome of the litigation.

347 On 11 July 2013, Mr Maloney informed a meeting of the board that the Connective companies were involved in a due diligence exercise with Macquarie, who were considering taking a minority interest in Group. Mr Maloney also informed the meeting that the data room (where relevant information provided by the Connective companies was held for inspection by Macquarie) would open on 11 July 2013, and that completion of the sale was expected by 30 September 2013.

348 Macquarie was aware of the sensitivity about the ownership of the Connective business, such that the Connective companies and Macquarie dealt with each other over the phone rather than in writing.

349 In October 2013, the sale of 25% of the shares in Group to Macquarie was completed for the price of $5 million. The total proceeds of the sale, less the tax liability on the sale, were distributed in dividends to the shareholders: Slea, Millsave, and Mr Haron. Slea was not informed of the restructure and sale until after the sale was concluded. Slea did not accept the dividend as being valid, and put the dividend to one side.

350 The restructure and sale are alleged to constitute oppressive conduct in the oppression proceeding, and are also the subject of the derivative proceeding, where it is alleged that the directors exercised their powers to restructure for improper purposes. This is addressed in Part 3 of the judgment.

351 On 1 October 2013, Slea commenced a claim in this Court against Millsave, and sought declarations that the settlement of 16 August 2011 of the Haron proceeding, as between Millsave and Mr Haron, under the Millsave deed of settlement, had engaged the pre-emptive rights provisions in the constitutions of the Connective companies (Slea's pre-emptive rights proceeding).

352 On 20 October 2013, the Millsave deed of settlement was rescinded by Mr Haron and Millsave. The next day, on 21 October 2013, the trial began in this Court of Slea's pre-emptive rights proceeding and the Haron proceeding as against Slea. Both matters were referred to mediation on 22 October 2013.

353 On 22 October 2013, both the Haron proceeding and Slea's pre-emptive rights proceeding settled under a settlement deed of that date between Slea, Millsave and Mr Haron (the all parties deed of settlement).

354 On 25 October 2013, in accordance with the all parties deed of settlement, Millsave transferred 300 of its shares, representing a one-sixth (or 16.67%) interest in the Connective companies, to Mr Haron. Thus, Millsave's interest was reduced to 50%.

355 Under the all parties deed of settlement, Slea waived any pre-emptive right that it may have had in respect of the transfer of shares from Millsave to Mr Haron. Under the deed, Slea agreed to pay $1,150,000 to Mr Haron, in exchange for being released from any claim by Mr Haron that Slea was required to transfer shares in the Connective companies to Mr Haron.

356 Although Slea consented to the transfer at that time, thereby not triggering the pre-emptive rights provisions in the constitutions of Services and OSN, Slea now contends in an amendment to the oppression proceeding that it was misled and deceived by Millsave and Mr Haron into entering the all parties deed of settlement. In particular, Slea contends that it was misled and deceived into believing that its interest in the Connective business would remain at 33⅓% upon executing the all parties deed of settlement, whereas its interest in the Connective business was actually reduced from 33⅓% to 25% due to the restructure and sale to Macquarie (which was then unknown to Slea, and is discussed below in Part 3 of the judgment). The misleading and deceptive conduct claim is addressed in Part 4 of the judgment.

357 On 1 October 2013, whilst the Connective companies continued to negotiate with Macquarie, Slea's pre-emptive rights proceeding commenced against the Connective companies, Millsave, and Mr Haron, with Slea alleging that its pre-emptive rights had been breached by reason of the transfer of shares in the Connective companies from Millsave to Mr Haron, pursuant to the Millsave deed of settlement. The deed contained the settlement terms arising out of the Haron proceeding, as between Mr Haron and Millsave. Slea alleged that, in accordance with the constitutions of the Connective companies, Millsave should have offered Slea the shares transferred to Mr Haron.

October 2013: The Macquarie sale is completed

358 On 22 October 2013, the Haron proceeding and Slea's pre-emptive rights proceeding settled under the all parties deed of settlement, and Macquarie organised the payment enabling settlement of the sale of 25% of Group to be effected. The payment direction was given to Macquarie at about the same time that mediation in the aforementioned proceedings, which resulted in the all parties deed of settlement, was underway.

359 On 25 October 2013, the boards of OSN, Services, and Group met and passed resolutions necessary to give effect to the Macquarie sale. It was also resolved that James Angus, Macquarie's nominee, would be appointed to the board of Group.

360 On the same day, Millsave transferred 300 shares in each of the Connective companies to Mr Haron.

361 On 31 October 2013, the purchase by Macquarie was settled, and 5,464,724 shares in Group were transferred to Macquarie by Services and OSN.

362 In early November 2013, Mr Tsialtas became aware of the sale of shares in the Connective business to Macquarie, when he received a phone call from someone congratulating him on the sale.

363 On 11 November 2013, Mr Tsialtas wrote to the Connective companies with questions regarding dividends. He also said that Slea expected to be kept informed by the board of any significant transactions being considered by the Connective companies, and asked to be informed of any such transactions that were currently being contemplated by the board. He further stated that Slea expected the board to act at all times in good faith and in the best interests of the Connective companies. Slea reminded the board that, in a situation such as the present, where the interests of the shareholders might be divergent, the board should act fairly between the different classes of shareholders.

364 In response, Mr Maloney sent a letter to Mr Tsialtas on 13 November 2013, in which he failed to inform Mr Tsialtas of the restructuring and sale to Macquarie. Instead, Mr Maloney noted Mr Tsialtas's comment that the interests of the shareholders 'may be divergent', and stated: 'Again, if you take the view that Slea's interests are divergent to those of the other shareholders, would you please articulate why and what those interests are.'

365 On 20 November 2013, Arnold Bloch Leibler (ABL), Slea's new solicitors, wrote to the Connective companies' solicitors. ABL attached the letter that Mr Tsialtas had sent to the Connective companies on 11 November 2013, together with Mr Maloney's response of 13 November 2013. ABL said that Slea had become aware that the Connective companies were negotiating the sale of a stake in the Connective business to Macquarie.

366 At this time, neither Slea nor ABL realised that the transaction had already occurred, as distinct from being negotiated.

367 In their letter, ABL also stated that Slea, in good faith, entered into the all parties deed of settlement on 22 October 2013. ABL raised the possibility that Slea may have been misled as to the true state of affairs when entering into the all parties deed of settlement. ABL further stated that the Macquarie transaction appeared to involve an issue or transfer of shares in the capital of the Connective companies, which therefore engaged the pre-emptive rights provisions in either division 5 or division 6 of the Connective companies' constitutions. ABL requested details of the transaction.

368 Slea contends that the circumvention of its pre-emptive rights was deliberate and calculated. Slea claims that information about the restructure and sale should have been disclosed and was intentionally withheld, despite assurances to the contrary, and despite the fact that Slea owned 331⁄3% of the Connective companies. Slea claims that the withholding of this information occurred, despite the fact that valuations of the Connective companies were being considered in the Haron proceeding and would have been affected by the restructure and sale; and despite the fact that, under the discovery orders made in the Haron proceeding, the restructure and sale should have been discovered. The failure by the Connective companies and their officers to give proper discovery is discussed in more detail in Part 3 of the judgment.

369 On 20 November 2013, Mr Maloney eventually informed Mr Tsialtas of the sale to Macquarie of a 25% interest in the Connective business for $5 million. As a consequence, Slea sought undertakings from the Connective companies and Macquarie to preserve the status quo. On 21 November 2013, the Connective companies gave the undertakings sought by Slea. Macquarie refused to provide the undertakings sought by Slea.

Improper purpose and the oppression proceeding

370 Slea contends that, in establishing Group and transferring the Connective business to Group and its subsidiaries, the directors exercised their powers for an improper purpose, in substance, to circumvent Slea's pre-emptive rights under the pre-emptive rights provisions.

371 On 17 December 2013, Slea sought leave to amend the oppression proceeding to join Millsave, Macquarie, and the directors as defendants. Slea also sought to amend its statement of claim to include allegations that the restructure and sale to Macquarie constituted a breach of duty by the directors.

372 On 14 March 2014, Efthim AsJ refused Slea's application for leave to amend its statement of claim to allege a breach of duty by the directors, on the ground that Slea required leave under s 237 of the Corporations Act to bring a derivative proceeding alleging that the directors had breached their duties to the Connective companies, and that Macquarie had assisted or participated in the breach of duties.

373 On 30 June 2014, Efthim AsJ ordered that Millsave, Group, Group's subsidiaries and Mr Haron be joined as defendants in the oppression proceeding, and that Slea be granted leave to file an amended statement of claim.

374 On 1 July 2014, Slea filed an amended statement of claim and pleaded the restructure and sale to Macquarie as further acts of oppression. This issue is addressed in Part 3 of the judgment.

375 On 1 July 2015, Slea further amended its statement of claim in the oppression proceeding. Slea alleged that it would not have waived its pre-emptive rights had it known about the secret Macquarie transaction. Slea says that it was misled and deceived into agreeing to waive its pre-emptive rights and that it accordingly suffered loss and damage. Slea seeks an order that Millsave pay damages of $20 million to Slea, plus the dividends paid to Mr Haron, in addition to other relief. This issue is addressed in Part 4 of the judgment.

376 On 27 May 2016, Slea sought leave under s 237 of the Corporations Act to bring derivative proceedings in the name of Services and OSN against the directors, Macquarie, and Group and its subsidiaries, alleging, inter alia, that the directors had exercised their powers in establishing Group for the improper purpose of circumventing the pre-emptive rights held by Slea.

377 On 29 November 2017, Slea's application was approved by the Court. Leave was granted to Slea under s 237 of the Corporations Act to bring a derivative proceeding in the name of Services and OSN against the directors of the Connective companies, Macquarie, Group and its subsidiaries. The directors unsuccessfully appealed the grant of leave to the Court of Appeal.

The Connective companies' pre-emptive rights proceeding

378 On 11 August 2016, the Connective companies commenced proceedings against Slea and Minerva, alleging breach of the pre-emptive rights provisions arising from the accommodation agreement, and the 2009 agreement entered into between Slea and Minerva (of Liberty) (Connective's pre-emptive rights proceeding).[5] The relief sought by the Connective companies included an order compelling Slea to offer its shares in the Connective companies to Millsave and Mr Haron, in accordance with the pre-emptive rights provisions.

379 On 4 October 2016, Slea and Minerva applied to have Connective's pre-emptive rights proceeding dismissed or stayed. Slea and Minerva sought an injunction under s 1324 of the Corporations Act to restrain the Connective companies from pursuing Connective's pre-emptive rights proceeding on the basis that, in doing so, they were contravening the prohibition in s 260A(1) of the Act against a company providing financial assistance to a person for the acquisition of shares in the company; in this case, Millsave and Mr Haron. The application for the injunction was ultimately upheld by the High Court of Australia.[6]

380 In 2018, the Connective companies entered into a sale process in respect of the Connective business (the sale process), which ultimately led to the proposed sale of the Connective business to AFG, a publicly listed finance company, for some $130 million.

381 The undertaking of the sale process, which involved soliciting offers for the Connective business from the public at large, and the proposed sale to AFG, is also alleged as oppressive conduct in the oppression proceeding. Further, in the derivative proceeding, the decision by the directors to undertake the sale process is alleged by Slea to have been made for an improper purpose - in substance, the sale process was intended to defeat the claims made by Slea in the oppression proceeding, including relief sought to undo the Macquarie transaction. If the Connective business was sold, then the claim for relief made by Slea to undo the Macquarie transaction would have been frustrated. Slea's claims in this respect are addressed in more detail in Part 5 of the judgment.

382 On 23 August 2019, the agreement between the Connective companies and AFG was the subject of a proceeding instituted in this Court by Group and its subsidiaries to approve the sale (the approval proceeding). In substance, the Connective companies sought judicial advice that the sale to AFG under the sale process did not infringe the duties of the directors.

383 The approval proceeding was brought before me for hearing at the same time as the oppression and derivative proceedings. As discussed below, the approval proceeding was discontinued during the hearing of the oppression and derivative proceedings.

384 Before dealing with the alleged oppressive acts and other claims, it may be helpful to address the appearances, especially as Mr Lees appears to have been represented in different guises. Further, there are two evidentiary issues that have implications for several of the claims, and are conveniently dealt with here. These are known as the Murray Lees statement (Murray Lees statement) and the Myers QC admission (Myers QC admission).

385 In the parts that follow, much is made of the lack of credibility of the Connective companies' directors (Mr Lees, Mr Haron, and Mr Maloney), as well as Mr Mark Korda, who was involved in the sale process (the subject of Part 5 of the judgment). It is useful to address this issue before delving into the particular complaints made by Slea and the derivative plaintiffs.

386 Part 1 introduces the relevant background facts and provides a basis upon which to understand the particular complaints made by Slea and the derivative plaintiffs.

387 Slea alleges thirteen instances of oppression. Part 2 deals with the bulk of the oppression claims made by Slea. In particular:

1. failure to pay dividends;

2. inappropriate retention of dividends;

3. inappropriate payment of directors' fees;

4. inappropriate recording of directors' fees;

5. the decision not to provide further drafts of the shareholders' agreement;

6. conduct to remove Slea as a shareholder;

11. active participation in and funding of litigation; and

12. withholding of financial records.

388 Part 3 deals with the derivative proceeding concerning the restructure and sale to Macquarie, the alleged breach of duties by the directors, and the adoption of provisions in the Group constitution. These are also alleged to constitute instances 7, 8, and 9 of the oppressive conduct.

389 Part 4 deals with Slea's claims arising out of settlement of the Haron proceeding, and whether Slea has the right to acquire the shares transferred to Mr Haron. This includes the 10th instance of oppressive conduct.

390 Part 5 deals with the derivative proceeding involving the sale process and the alleged breach of duties by the directors. This also includes the 13th instance of oppressive conduct.

391 Part 6 deals with the relief and orders arising from Parts 2 to 5.

392 In the oppression proceeding, the Connective companies were separately represented; Mr Haron, as a shareholder in the Connective companies, was separately represented; and Millsave, as a shareholder in the Connective companies, was separately represented. Mr Lees was the controlling mind of Millsave and the dominant controlling mind of the Connective companies.

393 In the derivative proceeding, Mr Lees, Mr Haron and Mr Maloney were separately represented as directors of the Connective companies.

394 Counsel for Mr Haron in the oppression proceeding led evidence from Mr Haron in both proceedings, although separate counsel were acting for Mr Haron in the derivative proceeding, as a director of the Connective companies.

395 In considering the separate cases put by the Connective companies, Millsave and Mr Lees, I have inferred that Mr Lees had a hand in formulating the case put by each.

396 A reference to the directors refers to Mr Lees and Mr Haron until Mr Maloney joined the board in 2011 and, after he joined, includes Mr Maloney. A reference to the Connective companies is a reference to Services and OSN until the restructure, after which it refers to Services, OSN, Group and its subsidiaries.

397 Mr Young appeared for Macquarie in the derivative proceeding. On 7 May 2019, Macquarie gave notice to the Court, and the parties to the derivative proceeding, that it would take no further active part in the derivative proceeding, other than to make submissions in relation to relief.

398 Macquarie filed written closing submissions which I deal with in Part 3. Macquarie did not seek to cross-examine any witnesses or tender any evidence, even where it made submissions as to the contributions that it made to the Connective business. Macquarie also appeared on claims for confidentiality in respect of 19 documents which it discovered.

399 Murray Lees, the brother of Mr Lees, had an undefined interest in Millsave, a shareholder in the Connective companies. He also purported to act as a director of the Connective companies, although he initially was not formerly appointed a director of the Connective companies.

400 Murray Lees did not give evidence, although he was involved in the earlier stages of the alleged oppressive conduct. He made a statement, which was tendered by Slea, and which I deal with below. By reason of his failure to give evidence, I have been able to more readily draw inferences relating to his intentions from his conduct in the oppression proceeding.

401 Andrew Butler, an accountant, was involved in the earlier stages of the alleged oppressive conduct and managed the Connective business along with Mr Lees, Mr Haron and Murray Lees. By reason of his failure to give evidence, I have been more readily able to draw adverse inferences relating to his intentions from his conduct in the oppression proceeding.

402 In early 2016, Quinn Emanuel Urquhart & Sullivan (Quinn Emanuel) replaced Maddocks & Associates (Maddocks) as the Connective companies' lawyers. The conduct of Quinn Emanuel, and the failure to call the partner handling the Connective matter, is of particular relevance in the oppression and derivative proceedings, in relation to the proposed sale of the Connective business by the Group directors, as discussed below.

403 Before turning to the disputed issues, I should address a major issue in this case; namely, the credit of Mr Lees, Mr Haron, Mr Maloney, and Mr Korda. Slea submits that, on any issue in dispute, their evidence should be rejected unless contrary to their own interests. It also submits that, when asked about matters adverse to them, the defendants' witnesses - with the exception of David Bailey of AFG, who is a relevant witness in the proposed sale of the Connective business to AFG, which is the subject of Part 5 of the judgment, and, in part, Mr Haron - would evade, obfuscate, and mislead.

404 There were a number of issues on which Mr Lees' credit was challenged. Slea submits that Mr Lees was untruthful in giving evidence and willing to say anything that he thought would help him, and that he could get away with; and that, on contentious issues, he should not be believed unless his evidence could be corroborated.

405 I accept the substance of Slea's submission on Mr Lees' credit. I have outlined my reasons for doing so elsewhere in this judgment; however, at this point, it suffices for me to say that I did not accept his evidence on key issues and found him to be untruthful and/or lacking credibility. On contentious issues, I have not accepted Mr Lees' evidence, unless it has been corroborated by other evidence. My observations of Mr Lees' demeanour and behaviour in the witness box, over several days, factored into the adverse findings that I have reached on his credit. Mr Lees' preparedness to lie was dramatically brought home when documents that he should have discovered, and which were inconsistent with his evidence, were produced by AFG on subpoena.

406 Mr Haron's evidence in many respects was unreliable and untruthful. He presented as a weak man, totally overborne by Mr Lees. He was clearly torn between telling the truth and his obsequiousness to Mr Lees. On important issues, he lied.

407 Mr Maloney was accused of giving evidence that was unbelievable. Slea submits that Mr Maloney's denial that he was not thinking about pre-emptive rights during the restructure was unbelievable and inconsistent with contemporaneous evidence.

408 Mr Maloney was an unreliable witness. I agree with Slea that he was untruthful in his evidence that he did not think about the pre-emptive provisions during the restructure. I am not prepared to accept his evidence on contentious issues unless corroborated.

409 Slea submits that Mr Korda's evidence that he did not tell Mr Bailey that an asset sale, subject to court approval, would bring Slea to the negotiating table, was untrue. Slea submits that it was contradicted by Mr Bailey and contemporaneous documents. Other important aspects of Mr Korda's evidence were misleading. I found him to be a dishonest witness.

410 The following provisions from the Evidence Act 2008 (Vic) (Evidence Act) are relevant to the rulings provided below:

59 The hearsay rule - exclusion of hearsay evidence

(1) Evidence of a previous representation made by a person is not admissible to prove the existence of a fact that it can reasonably be supposed that the person intended to assert by the representation.

...

81 Hearsay and opinion rules - exception for admissions and related representations

(1) The hearsay rule and the opinion rule do not apply to evidence of an admission.

(2) The hearsay rule and the opinion rule do not apply to evidence of a previous representation -

(a) that was made in relation to an admission at the time the admission was made, or shortly before or after that time; and

(b) to which it is reasonably necessary to refer in order to understand the admission.

82 Exclusion of evidence of admissions that is not first-hand

Section 81 does not prevent the application of the hearsay rule to evidence of an admission unless -

(a) it is given by a person who saw, heard or otherwise perceived the admission being made; or

(b) it is a document in which the admission is made.

83 Exclusion of evidence of admissions as against third parties

(1) Section 81 does not prevent the application of the hearsay rule or the opinion rule to evidence of an admission in respect of the case of a third party.

(2) The evidence may be used in respect of the case of a third party if that party consents.

(3) Consent cannot be given in respect of part only of the evidence.

(4) In this section, third party means a party to the proceeding concerned, other than the party who -

(a) made the admission; or

(b) adduced the evidence.

...

87 Admissions made with authority

(1) For the purpose of determining whether a previous representation made by a person is also taken to be an admission by a party, the court is to admit the representation if it is reasonably open to find that -

(a) when the representation was made, the person had authority to make statements on behalf of the party in relation to the matter with respect to which the representation was made; or

(b) when the representation was made, the person was an employee of the party, or had authority otherwise to act for the party, and the representation related to a matter within the scope of the person's employment or authority; or

...

For the purpose of determining whether evidence of an admission is admissible, the court is to find that a particular person made the admission if it is reasonably open to find that he or she made the admission.

411 An admission is defined in the dictionary to the Evidence Act to mean a previous representation that is 'made by a person who is or becomes a party to a proceeding' and is 'adverse to the person's interest in the outcome of the proceeding'. A previous representation is defined to mean 'a representation made otherwise than in the course of giving evidence in the proceeding in which evidence of the representation is sought to be adduced'. A representation is defined to include, inter alia, 'an express or implied representation' or 'a representation to be inferred from conduct'.

Application to admit the content of the Murray Lees statement as an admission in both the oppression and derivative proceedings

412 For the reasons outlined below, the Murray Lees statement is admissible in both the oppression and the derivative proceedings.

413 The Murray Lees statement is a statement signed by him on 11 May 2016. Its origins require some explanation. As indicated above, Murray Lees acted as one of the four principals of the Connective companies, along with Mr Lees, Mr Haron and, for a time, Mr Butler.

414 From around late 2015, the evidence suggests that Murray Lees' relationship with his brother, Mr Lees, and the Connective companies had deteriorated and, for a time, Murray Lees aligned himself with Slea and Liberty.

415 In November 2015, Murray Lees was made redundant from the Connective business. On 11 January 2016, he, together with his associated company, Mortgage Results, entered into a financial support agreement with Minerva. On 11 July 2016, Mortgage Results commenced proceedings against Millsave to assert a legal right to 25% of the shares in Services and OSN, which Millsave defended.

416 On 11 May 2016, solicitors for Slea took a statement from Murray Lees in which he purports to give his version of conversations, events, and decisions that feature in the oppression and derivative proceedings, including efforts to give effect to the alleged agreement with Mr Haron, the treatment of dividends and remuneration, and the circumstances of the restructure and sale to Macquarie.

417 On 30 August 2016, the Connective companies[7] commenced proceedings against Murray Lees and Slea, and alleged that the Murray Lees statement disclosed confidential information of the Connective companies to Slea and its lawyers (the confidentiality proceeding).

418 Following commencement of the confidentiality proceeding, Quinn Emanuel, acting for the Connective companies, and Mr Lees, identified paragraphs in the Murray Lees statement which they asserted were subject to the Connective companies' rights of confidence and privilege. This was conveyed through correspondence from Quinn Emanuel, dated 19 October 2016, which applied yellow highlight to the parts of the statement said to traverse areas in respect of which the Connective companies asserted rights of confidentiality. Mr Lees identified the impugned paragraphs in a statement dated 13 February 2017.

419 The relevant statements of Mr Murray Lees are as follows:

12 Glenn, Mr Haron and I did not want to have any new investors in the business. We therefore decided to bide our time so that the other purchasers would go away and we could purchase Slea's shareholding ourselves at a later stage when that was viable option.

13 Around this time, Mr Haron, Glenn and I decided to take steps to ensure that the Connective companies did not make any profits so that they would not have to declare dividends. We decided to increase the salaries and fees paid to ourselves (Mr Haron, Glenn and me) and thereby reduce the profits so we could avoid paying a dividend. This meant that Mr Haron would effectively receive a share of the profits and Mr Tsialtas would not.

14 Reflecting on this events, I am not proud of our actions towards Mr Tsialtas. We wanted to treat Mr Haron as if he was a shareholder, and avoid paying dividends to Slea. As time went on, we wanted to declare dividends because it would have been more tax effective for us but we had to keep the arrangements in place to avoid paying dividends to Slea.

16 Glenn, Mr Haron and I decided we did not want Liberty as a shareholder. We felt it limited our ability to deal with Connective in the future. We decided to look at options to force the unwinding of Slea's agreement with Liberty.

17 We asked him to consider some strategies on how to address our situation with Mr Tsialtas. We were frustrated by our inability to declare a dividend.

18 In late July, Mr Butler circulated proposed strategies to deal with Mr Tsialtas by email to Mr Haron, Glenn and me. These strategies were described as 'version 1 was to buy out Slea's interest. Version 2 was to get Mr Haron to pursue a 25% shareholding from Slea. We decided on the 'version 2' strategy.

420 On 7 March 2017, the confidentiality proceeding was brought to an end when Quinn Emanuel informed Slea's solicitors that, in the interests of having the derivative leave application resolved, they would not object to Slea relying on the Murray Lees statement on the grounds of any asserted breach of confidentiality.

421 Slea's application for derivative leave to bring proceedings in the name of Services and OSN against the directors was supported by an affidavit to which the Murray Lees statement was exhibited.[8] At that hearing, the Connective companies submitted that Slea could not rely on the statement in the proceeding, as Slea had not proved that the statement was in fact signed by Murray Lees. I accepted Slea's submission that the confidentiality proceeding and the correspondence referred to above constituted an admission by the Connective companies that the statement was, in fact, made by Murray Lees and, on the basis that the proceedings were interlocutory, the statement could be admitted notwithstanding its hearsay nature.[9]

Slea's submissions on the statement's admissibility

422 Slea submits that admissions of factual assertions made in the Murray Lees statement were made by the Connective defendant companies, Millsave, Mr Lees, Mr Haron and Mr Maloney.

423 Slea contends that the Connective defendants made admissions by making claims of confidentiality. Slea contends that Mr Lees made specific claims of confidentiality by putting in his own statement in which he identified, and marked in yellow, parts of the Murray Lees statement that he said were confidential.

424 As against Millsave, Slea submits that Mr Lees made the admission on behalf of Millsave, and that Millsave remained silent as these claims of confidentiality were made.

425 As against each of Mr Haron and Mr Maloney, Slea relies on an act and also silence.

426 Slea does not seek to tender the Murray Lees statement as a statement of Murray Lees. Slea accepts that the statement is hearsay, and does not rely on any exception to the hearsay rule for its admission. Rather Slea contends that, by making claims of confidentiality, the Connective companies have represented that the identified parts of the document over which they claimed confidentiality are true, and therefore, having made those representations of truth, the Connective companies have admitted the facts the subject of the confidentiality claim.

427 Slea says that each of the defendants to the oppression and derivative proceedings (the Connective companies, the directors, Mr Haron and Millsave) made the relevant representations as to truth, and therefore also the relevant admissions. In this section, a reference to the defendants, should be taken as a reference to the defendants to each of the oppression and derivative proceedings, unless the context otherwise requires.

428 The Connective companies are said to have made representations as to truth through:

(a) correspondence from their solicitors asserting that the Murray Lees statement as a whole, or parts thereof, was confidential;

(b) making claims of confidentiality in the confidentiality proceeding; and

(c) filing affidavits of their solicitors in interlocutory disputes, in the oppression proceeding, to allege that the Murray Lees statement was confidential.

429 Slea submits that under s 87 of the Evidence Act, and in accordance with Hoy Mobile Pty Ltd v Allphones Retail Pty Ltd,[10] the representations made by Quinn Emanuel and counsel for the Connective companies are representations and admissions of the Connective companies themselves.

430 By making his statement dated 13 February 2017, in which he identified paragraphs of the Murray Lees statement that he said 'traverse[d] information which is subject to Connective's rights of confidence and privilege,' Slea submits that Mr Lees admitted the truth of the facts asserted.

431 Slea also submits that Mr Lees' representations as to truth were also made on behalf of Millsave. As the sole director and shareholder of Millsave at the time, Mr Lees had authority on behalf of Millsave in respect of the oppression proceeding. Slea contends that by reason of s 87 of the Evidence Act, Mr Lees' statement is to be taken as a representation and an admission of Millsave. Slea also relies on report 26 of the Australian Law Reform Commission, which states that an admission made by the managing director of a company will generally bind that company.[11]

432 Mr Haron is alleged to have made the relevant representation by signing an overarching obligations certification on behalf of the Connective companies in the confidentiality proceeding. Slea submits that, by certifying that the confidentiality proceeding had a proper basis, Mr Haron represented - impliedly and inferentially by his conduct - that the Murray Lees statement was true.

433 Similarly, Mr Maloney is said to have made the relevant representation by reason of the fact that, in respect of the confidentiality proceeding, Beau Deleuil (a partner at Quinn Emanuel) certified that Mr Maloney had personally made an overarching obligation certification in other civil proceedings within the previous two years, pursuant to s 41(5)(b) of the Civil Procedure Act 2010 (Vic) (Civil Procedure Act).

434 Slea contends as follows. By Mr Deleuil's certification, Mr Maloney represented, through Mr Deleuil, impliedly and inferentially by his conduct, that the allegations made in the confidentiality proceeding had a proper basis. Further, between 10 June 2016 and 7 March 2017, when the Connective companies through their solicitors asserted the confidential nature of the Murray Lees statement and commenced the confidentiality proceeding, Mr Maloney was a director of the Connective companies and was presumably aware of these matters. Presumably, he was also aware that Mr Haron had signed an overarching obligations certification in respect of the confidentiality proceeding. Slea submits that Mr Maloney therefore impliedly represented, or by his conduct inferred, that the passages objected to in the Murray Lees statement were true.

435 Slea submits that each of these defendants also made a representation by silence. Notwithstanding that the Murray Lees statement was the subject of extensive correspondence and court documents in the oppression proceeding, Slea submits that at no stage have the defendants said that the statement was untrue. It suggests that this was a situation where a denial or explanation would have been expected;[12] however, it has never been asserted that the matters were false or misrepresented - at best, there have only been express non-admissions.

436 Two pieces of correspondence were identified in which Quinn Emanuel asserted non-admissions in respect of the content of the Murray Lees statement. First, in a letter sent by Quinn Emanuel to Murray Lees, on 10 June 2016, the following appears:

[Y]our statement refers to and discloses confidential information and deliberations between Directors and senior executive officers of Connective in relation to Slea. These include references to conversations and decisions said to have been reached between you and others on behalf of Connective, and in relation to Slea (the veracity of which is expressly not admitted).

437 Secondly, in a letter sent to Slea's then lawyers on 10 August 2016, Quinn Emanuel states: 'In referencing the above paragraphs, our clients expressly do not admit that the matters stated by [Murray] Lees are in fact true and correct.'

438 Slea notes that the assertions of non-admissions were made by Quinn Emanuel on behalf of the Connective companies only, not on behalf of the directors. Slea submits that Mr Borsky QC, who appeared for the defendant directors, failed to address the alleged representation by silence of the directors. Further, Slea submits it is notable that the non-admissions are not contained within either the claim for confidentiality put forward by Quinn Emanuel in the highlighted version of the Murray Lees statement, or Mr Lees' statement. These are the documents on which Slea relies as constituting the relevant representations as to truth.

439 Slea also rejects the argument that Mr Lees does not make an admission in his statement. Although Mr Lees' statement says, 'Murray purports to describe events he observed ... and purports to disclose matters involving Connective's confidential and privileged information', which Millsave said cannot amount to an admission, Slea says that this general argument fails to engage with objective fact. Namely, that Mr Lees thoroughly traversed the Murray Lees statement, paragraph by paragraph, and identified specific sentences and paragraphs that were said to be confidential; however, it is submitted that Mr Lees failed to identify any sentences or paragraphs which were said to be false. Slea says that this is precisely the type of situation where one would expect claims about falsity to be explicitly made.[13] In this respect, Slea submits that some matters over which confidentiality was claimed have since been shown to be undoubtedly true; for example, Murray Lees' claims about asking Mr Butler to consider strategies for dealing with Slea, and the circulation of the version 1 and version 2 emails.

440 Regardless, Slea submits that any assertion of non-admission is meaningless. The defendants have not asserted that there was some misrepresentation of a confidential discussion, but rather that particular matters described by Murray Lees occurred within the context of confidential discussions. Slea says that this is a quintessential representation of truth because it is a representation that statements or decisions, which Murray Lees asserts were said or made, took place as part of confidential discussions. Slea submits that claiming something was part of confidential discussions cannot be a non-admission that certain things were said, or a denial that certain things were said; it can only be a representation that those things were said.

441 Slea highlights the incompatibility of saying, on the one hand, that something is confidential; but saying, on the other hand, that something is simply false. The gravamen of Slea's submission is that by representing paragraphs of the Murray Lees Statement as confidential, each of the defendants necessarily represented those paragraphs as being true. In this respect, Slea referred to three authorities.

Slea's authorities on representation as to silence

442 In Financial Times Ltd v Interbrew SA (Interbrew),[14] Sedley LJ, with whom Longmore and Ward LLJ agreed, accepted that there can be no confidentiality in false information.[15] That statement was subsequently adopted by Ward J of the New South Wales Supreme Court in Brand v Monks.[16]

443 The key authority that Slea relies on, however, is the decision of Brereton J in the New South Wales Supreme Court case of AMI Australia Holdings Pty Ltd v Fairfax Media Publications Pty Ltd (AMI v Fairfax),[17] in which his Honour stated:

In the present case, the position is complicated by the circumstance that AMI contends that what Fairfax proposes to publish is, at least in part, false. This raises an issue as to the relationship between confidentiality and accuracy: the question is whether the dissemination of 'misinformation' in a field to which, if the information were accurate, obligations of confidentiality would apply, can be restrained as a breach of confidence. In my view, the answer depends upon whether the dissemination can be characterised as a 'use' of confidential information. If what is disseminated is derived from information obtained in confidence, then it will be a 'use' of that information, even if such use involves misinterpretation or misrepresentation of it. But merely to publish untrue statements on subject matter that, if true, would be protected by confidentiality, does not of itself involve a 'use' of confidential information. The confection of falsehoods about another, albeit in respect of subject matter otherwise within the field of confidentiality, is not of itself a breach of confidence. But if the confection makes use of information obtained in confidence, it will be nonetheless a use of confidential information, and will not be deprived of that character by its inaccuracy.

Accordingly, publication of false imputations about matters to which confidence would attach if they were true is not a breach of confidence, unless it can be characterised as a use of confidential information.[18]

444 In this case, the plaintiffs made two allegations: the first being that certain parts of the information to be published had been provided by a former employee in breach of confidence; the second being that certain parts of what was proposed to be published contained falsehoods which, if published, would be malicious and injurious to the plaintiffs' business. The plaintiffs specifically identified the matters that they alleged to be false and, in his decision, Brereton J considered the confidentiality and falsity of each imputation.

445 Referring to his Honour's analysis on this point, Slea distinguishes AMI v Fairfax from the case before the Court, on the basis that at no time did any of the defendants assert the falsity of parts of the Murray Lees statement, nor did they identify which parts of it were said to be false; the most that can be said, on their behalf, is that the truth of the matters in the statement was not admitted.

446 Slea construes AMI v Fairfax as stating that one can conceivably frame a claim for confidentiality by alleging that a particular confection of falsehoods made use of information obtained in confidence, even though this use in turn involves some mischaracterisation or misrepresentation of the confidential information. If Brereton J's analysis reflects the current state of the law, then Slea submits that this was not the claim made by the defendants. No assertion was made as to the misrepresentation of confidential information; the only assertion made concerned the disclosure of confidential communications.

447 Slea submits that the decision in AMI v Fairfax does not stand for the proposition that one can simultaneously say that information which is false is also confidential. Rather, it is authority that one might misuse confidential information, where it is used in making a representation that is otherwise false. Slea repeats that this is not the claim being made here.

448 Slea concludes its submissions by stating that some of the paragraphs in the Murray Lees statement are claimed to be confidential, whilst others are not. Slea says that only the first group has effectively been represented as true and thus contains admissions. However, Slea submits that the whole document should be admitted pursuant to s 81(2) of the Evidence Act, because the parts of the Murray Lees statement over which confidentiality is not claimed are necessary to understand the content of the representations.

The defendants' submissions on the statement's admissibility

449 Mr Borsky made submissions for each of the directors. The Connective companies, Millsave and Mr Haron adopted Mr Borsky's submissions.

450 The defendants characterised Slea's argument as saying that one cannot claim something as confidential unless one also says that it is true. Relying upon the remarks of Brereton J noted earlier, and adopting a different interpretation to that of Slea, the directors challenged the correctness of Slea's contention.

451 Accepting that there are factual differences between the cases, the directors contend that, as a matter of law, it is possible to claim that something is confidential without admitting that it is true. The directors submit that it is not correct to say, as Slea does, that it is not possible to claim confidentiality without conceding truth. In this respect, the directors submit that the statement of law in AMI v Fairfax is more subtle than as represented by Slea.

452 The directors submit that AMI v Fairfax does not stand for the proposition that once a confidentiality claim is made, the information subject to the claim is represented as being true; rather, it depends on the specific use of the information.

453 The directors distinguished the facts of this case from, for example, the decision in Interbrew,[19] where an external fraudster obtained a company document, then doctored and disseminated it. In the current proceeding, the directors submitted that the claim being made is that Murray Lees participated in discussions and deliberations with the other principals and the boards' advisers, and then used what he knew of those deliberations to misrepresent their contents, thereby disclosing confidential information of the Connective companies.

454 The directors submit that the point is not whether the confidentiality proceeding would have failed or succeeded, or whether there was a deficiency in the pleadings; rather, Slea must establish that the mere bringing of the claim was, according to law, an admission of the truth of the information. The directors say that Brereton J's statement in AMI v Fairfax, in fact, shows that there need not be any such inconsistency between a claim of confidentiality and a claim of falsehood.

455 For Slea to succeed in its application, the directors say that the Court must find some representation by each of Mr Lees, Mr Maloney, and Mr Haron that what Murray Lees said in his statement was true.

456 The directors submit that, from the outset, it is clear that there is no admission as to truth, and rely in this respect on two pieces of correspondence (dated 10 June 2016 and 10 August 2016), in which Quinn Emanuel does not admit the veracity of the asserted confidential information.

457 The directors accept, however, that there was no denial of truth, but rather an express non-admission. The fact that the non-admission is not in every item of correspondence, the directors submit, is a long way short of a proper foundation for an implied representation by each of Mr Lees, Mr Maloney, and Mr Haron that the content of the Murray Lees statement was true.

458 The directors submit that the remainder of Slea's submissions are an attempt to isolate various features of the confidentiality proceeding and 'somehow cobble together enough straws' to persuade the Court that each director made an implied or inferred representation as to truth.

459 The directors referred to the highlighting of parts of the Murray Lees statement, and said that the highlighting did not constitute a suggestion by Mr Lees or Quinn Emanuel that those paragraphs contained confidential information (or that the information was true). In his statement, Mr Lees is said to have done no more than identify categories of information that traversed areas in respect of which confidentiality rights were being asserted. The breadth of language is said to be important.

460 Noting that the originating process in the confidentiality proceeding sought an injunction restraining Murray Lees from disclosing confidential information about a range of matters identified in the schedule, the directors submit that it is unsurprising that, when later asked to identify parts of the Murray Lees statement that is said to be confidential, Quinn Emanuel identified parts of the statement that traversed subject matters said in the schedule to the originating process to be confidential. The directors submit that it cannot fairly be said that Mr Lees made implied or inferred representations as to the truth of the Murray Lees statement.

461 The directors submit that the allegations in respect of Mr Haron and Mr Maloney are even more tenuous. The directors contend that Mr Haron's evidence was that he was not provided with a copy of the Murray Lees statement and was only aware of its contents at a high level. He also stated that he did not know the claim was that the statement disclosed confidential information. Therefore, Mr Haron cannot be said to have made an implied representation as to truth.

462 In my opinion, this representation of the evidence is not correct. Mr Haron was asked if he was aware that Quinn Emanuel had written to Slea's solicitors on 10 June 2016, alleged that the Murray Lees statement referred to and disclosed confidential information. Mr Haron said he 'didn't recall that, no'. This does not mean that Mr Haron did not know that the Connective companies had claimed that the Murray Lees statement disclosed confidential information.

463 The prior overarching obligations certification given by Mr Deleuil, to the effect that Mr Maloney had made overarching obligation certifications in other proceedings, is relied upon by Slea to invite a finding from the Court that Mr Maloney had made an implied or inferred representation that the content of the Murray Lees statement was true. The directors submit that this certification cannot possibly bear upon the truth of the Murray Lees statement.

Adoption of directors' submissions by other parties

464 The Connective companies adopted the submissions of the directors, insofar as they related to the letters written by Quinn Emanuel in which non-admissions were asserted, and also as to the proper application of the principles set out by Brereton J in AMI v Fairfax. Mr Haron, as a shareholder, also adopted the directors' submissions.

465 Millsave also adopted the directors' submissions; although, as counsel for the directors did not address Millsave's position, Slea submits that it is unclear what, in fact, it purports to adopt.

Section 135 application

467 The parties agreed that the question of whether the content of the Murray Lees statement should be admitted would be dealt with in this judgment. On the basis that this question would not be resolved prior to the conclusion of trial, counsel for the directors made oral and written submissions in respect of an application, pursuant to s 135 of the Evidence Act, for the Court to refuse admission of the statement on the basis that its probative value is substantially outweighed by the danger that it might be unfairly prejudicial, misleading or confusing, or result in an undue waste of time. That application would, of course, only be relevant in the event that the Court was inclined to receive the Murray Lees statement into evidence, as well as the admissions said to arise from it against any of the directors.

468 Counsel for the directors commenced making submissions in this respect, mainly by referring to documents said to cast doubt on the reliability of the Murray Lees statement.

469 In the course of discussions with counsel, however, I determined that the s 135 application was misconceived and that evidence about whether the Murray Lees statement was true or unreliable was irrelevant. Slea was not seeking to admit the Murray Lees statement as a statement of Murray Lees; rather, Slea sought to have the contents of the statement admitted as admissions made by the Connective companies. The relevant question is whether the defendants represented that parts of the Murray Lees statement were true, not whether Murray Lees has since resiled from that statement, and the effect that this might have.

470 I ruled that evidence about whether the Murray Lees statement was, in fact, correct was irrelevant to an application under s 135 of the Evidence Act. In those circumstances, I did not understand the s 135 application to be pressed.

471 The bringing of the confidentiality proceeding is alleged to be a representation and admission by the Connective companies of the statements of fact made by Murray Lees and identified by the Connective companies as being confidential.

472 Quinn Emanuel asserted on behalf of the Connective companies that the statement referred to and disclosed confidential information and deliberations, despite asserting that there was no admission of the facts.

473 Mr Borsky contended that in Mr Lees' statement, where he had highlighted the passages in the Murray Lees statement, he had done no more than identify categories of information that traversed areas in respect of which confidentiality rights were being asserted.

474 Importantly, at no stage did the Connective companies claim that any of the statements were false. At best, there was a non-admission of the facts asserted.

475 In AMI v Fairfax, some of the information that Fairfax proposed to publish was false. In substance, Brereton J held that, if the confection of falsehoods sought to be published made use of information obtained in confidence, it could nonetheless be a use of confidential information, and would not necessarily be deprived of that character by its inaccuracy.

476 There is no suggestion by the Connective companies that the confidentiality claim was based on an allegation that Murray Lees had misused confidential information in confecting a statement of falsehoods. In any event, AMI v Fairfax concerned a claim for breach of confidence. In this case, I have to be satisfied that the Connective companies, by their actions, have admitted the truth of highlighted statements made by Murray Lees in his written statement, not whether Murray Lees has breached an obligation of confidence.

477 I am satisfied that the Connective companies - by the contentions made on their behalf and on their instructions, and by their failure to dispute the accuracy of any of the assertions made in the highlighted passages - have admitted the accuracy and truth of the highlighted passages.

478 Mr Haron is alleged to have made the admission by signing the overarching obligation required to institute the confidentiality proceeding, and through his silence in not denying the accuracy of the statements subject to objection. Mr Haron was a director of the Connective companies. Mr Haron failed to dispute the accuracy of any of the highlighted passages despite the many opportunities to do so.

479 I am satisfied that this evidence establishes that Mr Haron has admitted the accuracy and truth of the highlighted passages.

480 Mr Maloney is alleged to have made the admission through his position as a director of the Connective companies. Mr Maloney was not mentioned as having been party to many of the discussions in the highlighted passages; he did not join the Connective companies until mid-2011. He is said to have been party to some discussions concerning the sale.

481 It may be inferred, however, that Mr Maloney, as chairman of the Connective companies, approved the institution of the confidentiality proceeding, particularly in the objection to conversations to which he is alleged to have been a party in the highlighted passages.

482 Accordingly, I find that the highlighted passages may be admitted as admissions of the Connective companies. I am also satisfied that the highlighted passages may be admitted as admissions of Mr Lees and Mr Haron. I am satisfied that the highlighted passages referring to conversations in which Mr Maloney was a party are admissible against Mr Maloney.

483 I find that the evidence admissible against Mr Lees is also admissible as against Millsave.

Application to use statement of Mr Myers QC as an admission

484 Slea seeks to admit the following statement of Mr Myers QC as an admission against the Connective companies and the directors in both the oppression and derivative proceedings. For the reasons given below, I reject the application.

485 On 17 August 2017, at the hearing before me of the derivative leave application, Mr Myers QC appeared for the Connective companies. Millsave was separately represented at the hearing, and Mr Haron was not represented.

486 The following exchange took place between Mr Myers QC and myself, and is drawn from the official transcript in this proceeding:

HIS HONOUR: Would I be entitled to think that there's no other commercial explanation for setting up the subsidiary company and transferring the business other than to avoid the pre-emptive clauses[?] No one's suggested there's any other reason.

MR MYERS QC: I don't suggest it. I ---

HIS HONOUR: I mean, I can look at it and say well it's - I wasn't surprised when I saw the statement. Am I allowed to say that? I mean, when I read it, it didn't seem to me this is a surprise and so therefore, on the other hand you say, 'Well it's tainted because of the loan'. But on the other hand, it's ---

MR MYERS QC: It's neither here nor there for men of the world.

HIS HONOUR: It didn't surprise me that that was what was going on, if someone says that was going on.

MR MYERS QC: Of course the restructure was to ensure that there were no pre-emptive rights provisions affecting the company that controlled the business, but whether that's put ---

HIS HONOUR: And that raises the point, did the Directors exercise their powers to reconstruct the company for a proper - did they have the power to do it for that purpose, which was opened by - Mr O'Bryan has opened - it was Ampol and ---

487 The statement to which I was referring in the third substantive paragraph of the exchange is a sentence within the Murray Lees statement.

488 Slea submits that the italicised statement of Mr Myers QC above is an admission against all defendants in the oppression and derivative proceedings (the Myers QC statement), to the effect that the purpose of the restructure was to circumvent Slea's pre-emptive rights, and is admissible on that basis. If admitted, Slea would seek to use the Myers QC statement as proof of the truth of the fact that it asserts; that is, that the directors' purpose in effecting the restructure was to circumvent, or avoid, Slea's pre-emptive rights.

489 The following matters were not in dispute. The Myers QC statement is hearsay, and can only be admitted if an exception to the hearsay rule is established. A potential preliminary issue arises that was not identified by the parties - namely, whether the transcript is second-hand hearsay and therefore excluded by s 82 of the Evidence Act.

490 Section 81(1) of the Evidence Act provides:

The hearsay rule and the opinion rule do not apply to evidence of an admission.[20]

Specific exclusionary rules relating to admissions are as follows -

• evidence of admissions that is not first-hand (section 82).

492 Section 82 provides:

Section 81 does not prevent the application of the hearsay rule to evidence of an admission unless -

(a) it is given by a person who saw, heard or otherwise perceived the admission being made; or

(b) it is a document in which the admission is made.[21]

493 The statement of Mr Myers QC recorded in the transcript is a previous representation within s 59 of the Evidence Act. Subject to any relevant exception to the rule, it is hearsay evidence and not admissible to prove the truth of its contents.[22] There was, however, no objection to the transcript being admitted as proof of what was said at the hearing. This was presumably on the basis that it could be admissible as first-hand hearsay, being evidence of the transcriber who prepared the transcript, and it would cause undue expense or was not reasonably practicable for that person to give evidence.[23]

494 However, if the statement is to be admitted to prove the truth of the evidence that the transcript records, then other exceptions to the hearsay rule must be relied upon.

495 Slea relies on s 81 of the Evidence Act, which provides that the hearsay rule does not apply to evidence of an admission. The Myers QC statement, Slea says, is clearly an admission within the meaning of the Evidence Act.

496 However, s 82 of the Evidence Act operates to exclude evidence of an admission that is not first-hand. The admission must be proved by a person who saw, heard or otherwise perceived the admission being made, or is in a document. In this case, s 82 raises the question of how evidence that is captured in a transcript is to be treated. Slea says that the transcript of the Myers QC statement is 'plainly' first-hand hearsay evidence of an admission, and therefore the hearsay rule does not apply. The defendant directors do not address this particular question.

497 For the reasons that follow, I am of the view that the transcript of the Myers QC statement cannot be admitted to prove the truth of the asserted fact that it records.

498 In Cross on Evidence, the learned author states in a footnote to ss 81 and 82 of the Evidence Act that a transcript of an examination which has been tape recorded is 'an illustration of a "document" within the meaning of s 82(b)', as it records representations by the transcriber of the tape recordings of the statements made by the examinee at the examination.[24] As authority for this proposition, the case of Australian Securities and Investments Commission v Fortescue Metals Group Ltd (No 2) (ASIC v Fortescue (No 2)), is cited. At first blush, this statement suggests that a transcript recording an admission is a document in which an admission is made.

499 The cited paragraph of the decision in ASIC v Fortescue (No 2), however, must be read in context. There, Gilmour J was considering the tender of statements made during examinations under s 19 of the Australian Securities and Investments Commission Act 2001 (Cth). In respect of the application of s 81 of the Evidence Act, his Honour stated:

[30] [F]urther consideration of the form in which the statements are tendered raises a doubt about whether the statements are admissible under s 81.

[31] In tendering the s 19 transcript relating to Mr Forrest's examination, ASIC relies on ss 81 and 88 of the Evidence Act and s 76 of the ASIC Act.

[32] The s 19 transcript of Mr Forrest's examination purportedly contains admissions made by Mr Forrest in the examination. But Mr Forrest is not the author of the document recording his alleged admissions. The transcript records representations made by the transcriber of the tape recording of the examination in relation to statements made by Mr Forrest at the examination. Therefore, s 82(b) prevents ASIC from relying on s 81 as a basis for the tender of the transcript.

...

[34] In relation to the tender of the examination transcripts of Messrs Rowley and Watling, persons who are not parties to this proceeding, ASIC relies on s 81 once again, and also s 87 of the Evidence Act ...[25]

500 His Honour then makes the statement cited in Cross on Evidence:

[35] Once again, these transcripts are caught, in my view, by s 82(b) of the Evidence Act. The transcripts of the examinations of Rowley and Watling record representations made by the transcriber of the tape recordings of the examinations in relation to the statements made by the examinees.[26]

501 In my view, paragraph [35], when read in conjunction with the earlier paragraphs, has the result that the expression 'caught by ... s 82(b)' means that the transcripts are excluded by s 82(b), rather than being an illustration of a document in which an admission is made.

502 This is reflected in the disposition of the matter by his Honour. Gilmour J went on to consider the definitions in the Evidence Act of 'document', 'admission', 'representation' and 'representation contained in a document', including that, pursuant to cl 6(b) of the Dictionary to the Evidence Act, a representation contained in a document is taken to have been made by a person if the person has signed the document. Gilmour J concluded that the tapes containing the aural recordings of the examinations fell within the definition of a document, and could therefore potentially be 'a document in which the admission is made' for the purposes of s 82(b) of the Evidence Act.[27] ASIC could seek to prove any relevant admissions by tendering the tape along with proof of the person speaking on the recording. In respect of transcripts which had been signed by Messrs Rowley and Watling, those were admissible as representations made by the examinees, subject to his Honour being satisfied that the signatures were authentic.

503 Support for the view that evidence of an admission recorded in a transcript is not first-hand hearsay is found in Odgers' Uniform Evidence Law. There, the learned author states that 'a document containing a "previous representation" by X (the author of the document) that D had made an admission would not be protected by s 81 from the application of the hearsay rule'.[28] The author refers to the decision of Daniel v Western Australia,[29] where R D Nicholson J held that field notes recording admissions were not a document in which an admission was made. In my view, that description is apt for an admission recorded on transcript - the transcript contains a previous representation by the author or transcriber of the transcript that, in this case, Mr Myers QC made an admission.

504 Commentary in Odgers' Uniform Evidence Law suggests that other exceptions to the hearsay rule in Div 3 of Pt 3.2 may apply to render such 'second-hand' evidence admissible. Of these, the only relevant exception is s 69, which provides an exception for business records:

69 Exception - business records

(1) This section applies to a document that -

(i) is or forms part of the records belonging to or kept by a person, body or organisation in the course of, or for the purposes of, a business; or

(ii) at any time was or formed part of such a record; and

(b) contains a previous representation made or recorded in the document in the course of, or for the purposes of, the business.

(2) The hearsay rule does not apply to the document (so far as it contains the representation) if the representation was made -

(a) by a person who had or might reasonably be supposed to have had personal knowledge of the asserted fact; or

(b) on the basis of information directly or indirectly supplied by a person who had or might reasonably be supposed to have had personal knowledge of the asserted fact.

(3) Subsection (2) does not apply if the representation -

(a) was prepared or obtained in the purpose of conducting, or for or in contemplation of or in connection with, an Australian or overseas proceeding; or

(b) was made in connection with an investigation relating or leading to a criminal proceeding.

505 While ss 69(1) and (2) may be satisfied, the crucial question is whether s 69(2) is excluded by reason of s 69(3)(a).

506 In Thomas v New South Wales,[30] Hodgson and Campbell JJA (Gyles AJA dissenting) held that a representation given before a Royal Commission and recorded on transcript satisfied ss 69(1) and (2), but was made 'in connection with' the proceeding constituted by the Royal Commission as contemplated by s 69(3)(a), such that s 69(2) was excluded and the transcript was inadmissible. There, Hodgson JA stated:

[9] The representation in question was plainly 'obtained' by the Crown for the purposes of the activity it was engaged in; and it was plainly obtained 'in connection with' the proceeding in question. The circumstance that the representation was made in the course of the proceedings does not indicate otherwise.

[10] The alternative view would, in my opinion, be contrary to the rationale of the business records exception to the hearsay rule, which is based on the likely reliability of entries made in the ordinary course of business or government activities, when there is no reason to suspect ulterior purposes.

[11] The alternative view would also mean that a transcript of evidence given in other proceedings would always be admissible in both civil and criminal proceedings, subject only to the discretion to exclude it under s 135 or s 137 of the Evidence Act; since in my opinion, the proceedings of a court fall within par (d) and perhaps also par (b) of cl 1(1) of Pt 2 of the Evidence Act Dictionary. This admissibility would not sit well with other statutory provisions, which closely restrict circumstances in which transcripts of evidence in other proceedings are admissible.[31]

507 The reasoning of the majority in Thomas v New South Wales has been applied in a number of cases.[32] It suffices to refer to Li v Deng (No 2),[33] where Ball J considered whether transcripts of evidence of hearings before a magistrate could be used to establish a tort of abuse of process or malicious prosecution. His Honour held:

[T]he plaintiff has led little admissible evidence concerning either tort. She has sought to tender ... the transcript of the evidence given at those hearings ... However, in my opinion ... none of that material is admissible to prove the relevant underlying facts... The transcripts may be admissible as first hand hearsay to prove what occurred at the hearings on the basis that they consist of evidence of the shorthand reporters who prepared the transcripts of what they heard at the hearings and it would cause undue expense or it is not reasonably practicable for those persons to give that evidence: Evidence Act s 64. However, the transcripts are not a business record which can be admitted under s 69 of the Evidence Act: see s 69(3)(a); Thomas v New South Wales.[34] Consequently, they are not admissible to prove the truth of the evidence they record.[35]

For these reasons, the transcript of the Myers QC statement should not be admitted, other than as first-hand hearsay evidence of what was said by Mr Myers QC at the hearing.

Part 2: The oppression claims

508 In the oppression proceeding, Slea alleges that the conduct of the affairs of Services and OSN by Millsave and Mr Haron as majority shareholders, and by Mr Lees, Mr Haron, and Mr Maloney as directors, has been oppressive to, unfairly prejudicial to, or unfairly discriminatory against Slea, and, in some respects, contrary to the interests of the members as a whole.[36]

509 As stated earlier, Slea pleads 13 separate allegations of oppression, the conduct of which is substantially made up of three phases:

(a) In the first phase, Slea alleges that, by around July 2009, Mr Lees, Murray Lees, and Mr Haron had determined that they would remove Slea as a shareholder in Services and OSN, and acquire Slea's shares at a depressed price. In order to achieve that objective, it is alleged that Mr Lees, Murray Lees, and Mr Haron engaged in oppressive conduct.

(b) The second phase of alleged oppressive conduct involves the restructure and subsequent sale to Macquarie in 2012 and 2013, the effect of which was to reduce Slea's interest in the Connective business from 331⁄3% to 25% and introduce a new shareholder, Macquarie. Slea says that this process was undertaken by the directors, Mr Lees, Mr Haron, and Mr Maloney, for an improper purpose.

(c) The third phase, in 2018 and 2019, involves the actions of the directors, Mr Lees, Mr Haron, and Mr Maloney, in seeking to sell the Connective business to a third party, AFG, for the allegedly improper purpose of denying the relief sought by Slea in the oppression proceeding.[37]

510 The oppression proceeding also alleges oppressive conduct spanning the duration of the three phases, specifically:

(a) the withholding by Services of financial records requested by Slea; and

(b) the alleged improper use of funds by Services and OSN, and their subsidiaries, in participating in the oppression proceeding, the derivative proceeding, and Connective's pre-emptive rights proceeding, including associated appeals.

511 In addition, the oppression proceeding contains other claims:

(a) It alleges that the all parties deed of settlement entered into on 31 October 2012, whereby Slea agreed to waive its pre-emptive rights in order to allow Mr Haron to acquire a 162⁄3% interest in Services and OSN, was procured by misleading and deceptive conduct, and accordingly, Slea did not waive its pre-emptive rights.

(b) Alternatively, on a proper construction of the deed, the shares that were transferred to Mr Haron were not the shares envisaged by the deed, nor were they the shares over which Slea had waived its pre-emptive rights, so that the share transfer to Mr Haron was in breach of the pre-emptive rights provisions.

512 Slea claims that, as a result, it is entitled to acquire the 162⁄3% shareholding offered to Mr Haron.

513 For completeness, the 13 specific pleaded allegations of oppression are as follows:

(a) failure to pay dividends;

(b) inappropriate retention of dividends;

(c) inappropriate payments to directors;

(d) inappropriate recording of directors' fees as unsecured related-party loans;

(e) failure to provide further drafts of the shareholders' agreement that had been proposed as part of the resolution by Slea and Millsave to enable Mr Haron's shareholding in the Connective companies, or to otherwise finalise the shareholders' agreement;

(f) conduct designed to remove Slea as a shareholder, including by seeking to depress the price of Slea's shares. The emails relied on as particulars to this plea are set out, in full, in the introduction. No particular conduct, in addition to that already referred to, is relied upon to establish this conduct. What this plea seeks to do is to allege that Mr Lees, Murray Lees, and Mr Haron agreed that they should seek to buy Slea's shares at a reduced value, which necessarily entailed that Slea not sell them to an outside third party. Further, the means of achieving that end involved the Connective companies, Millsave, and Mr Haron not only engaging in the pleaded oppressive conduct, but preventing Slea from selling its shares to anybody other than interests associated with Mr Lees, Murray Lees, and Mr Haron.

(g) purported restructure;

(h) sale to Macquarie;

(i) adoption of provisions of the Group constitution;

(j) active participation in, and funding of, litigation;

(k) withholding of financial records;

(l) sale process and sale to AFG; and

(m) procuring Slea's consent to waive its pre-emptive rights by allegedly misleading or deceptive conduct.

514 In these reasons, it will be convenient to deal with the first phase of oppression, together with the allegations of oppressive conduct that span the duration of the matter, with subsequent parts addressing the second and third phases of oppression, which also entail consideration of the defendant directors acting with an improper purpose.

515 Section 232 of the Corporations Act sets out when the Court has jurisdiction to give relief:

The Court may make an order under section 233 if:

(a) the conduct of a company's affairs; or

(b) an actual or proposed act or omission by or on behalf of a company; or

(c) a resolution, or a proposed resolution, of members or a class of members of a company;

is either:

(d) contrary to the interests of the members as a whole; or

(e) oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.

516 Section 233(1) sets out the orders that the Court can make:

The Court can make any order under this section that it considers appropriate in relation to the company, including an order:

(a) that the company be wound up;

(b) that the company's existing constitution be modified or repealed;

(c) regulating the conduct of the company's affairs in the future;

(d) for the purchase of any shares by any member or person to whom a share in the company has been transmitted by will or by operation of law;

(e) for the purchase of shares with an appropriate reduction of the company's share capital;

(f) for the company to institute, prosecute, defend or discontinue specified proceedings;

(g) authorising a member, or a person to whom a share in the company has been transmitted by will or by operation of law, to institute, prosecute, defend or discontinue specified proceedings in the name and on behalf of the company;

(h) appointing a receiver or a receiver and manager of any or all of the company's property;

(i) restraining a person from engaging in specified conduct or from doing a specified act;

(j) requiring a person to do a specified act.

517 Section 234 provides, inter alia, that a member of the company may make an application for an order under s 233, which Slea has done.

518 The statement of relevant principles set out by this Court in Re SRW Nominees Pty Ltd[38] was adopted by Slea and Millsave in their respective closing submissions. In that case, I stated the following:

Oppressive conduct

Turning to the case law, for there to be oppressive conduct for the purposes of s 232(e) of the Corporations Act, there must be commercial unfairness to a member or members of the company.

The phrase 'oppressive to, unfairly prejudicial to, or unfairly discriminatory against' is a compound expression.[39] The words should be 'considered merely as different aspects of the essential criterion, namely commercial unfairness'.[40]

In Re Companies (Western Australia) Code,[41] Murray J of the Supreme Court of Western Australia said the concept of 'unfairness' takes many forms and may include:

the harm suffered as a result of the conduct of management, the prejudice caused, the lack of reasonable commercial justification for the course taken, or simply in the decision making processes within the company.[42]

In Re Ledir Enterprises Pty Ltd,[43] Black J of the Supreme Court of New South Wales noted that s 232(e) is concerned with conduct that involves 'commercial unfairness' or 'a departure from the standards of fair dealing, or where a decision has been made so as to impose a disadvantage, disability or burden on the plaintiff that, according to ordinary standards of reasonableness and fair dealing, is unfair'.[44]

The test for commercial unfairness has an objective standard.[45] It requires an assessment of whether objectively, in the eyes of a commercial bystander, there has been unfairness.[46] As Brennan J stated in Wayde v New South Wales Rugby League Ltd:

The court must determine whether reasonable directors, possessing any special skill, knowledge or acumen possessed by the directors and having in mind the importance of furthering the corporate object on the one hand and the disadvantage, disability or burden which their decision will impose on a member on the other, would have decided that it was unfair to make that decision.[47]

Evidence of conduct having been engaged in deliberately, knowing it to be unfair or not in good faith is persuasive, but not necessary.[48] As Sackar J of the Supreme Court of New South Wales stated: 'although proof of some improper purpose or ulterior motive may well make the finding of oppression irresistible, the absence of such motivation will not and cannot in and of itself defeat [sic] charge of oppression'.[49]

If the directors or a majority membership conduct the affairs of a company such that they advance their own interests or the interests of others of their choice, to the detriment of a minority shareholder, that conduct will ordinarily fall within the ambit of the oppression section.[50]

Therefore the court is required to determine whether, on the balance of probabilities, an objective commercial bystander would be satisfied that the affairs of the company were being conducted unfairly. This inquiry is not assessed in a vacuum: the context is relevant to assess the fairness of the conduct.[51]

Contrary to the interests of the members as a whole

Subsection (d) of s 232 of the Corporations Act empowers the court to make an order under s 233 if the conduct of the companies' affairs is 'contrary to the interests of the members as a whole'.

In Turnbull v National Roads and Motorists' Association Ltd,[52] Campbell J of the Supreme Court of New South Wales opined that subsections (d) and (e) are distinct grounds of relief. Although Australian judgments have differed in their approach, Campbell J's approach has been widely adopted and is the preferred view.[53] I adopt this view.

There has been comparatively little judicial consideration of the phrase in s 232(d). In Sandy v Yindjibarndi Aboriginal Corporation RNTBC (No 4),[54] Pritchard J of the Supreme Court of Western Australia said:

Conduct by a board of directors will be contrary to the interests of the members as a whole if no board, acting reasonably, could have engaged in that conduct. It is not necessary to show bad faith on the part of the directors. In other words, conduct may be contrary to the interests of the members as a whole even though the board of directors does not act in bad faith.[55]

Although they are separate grounds, there may be conduct which falls within both subsections (d) and (e). ...[56]

519 To that summary, some further germane points of principle should be added:

(a) Conduct of a company's affairs may be oppressive pursuant to s 232, although the conduct is lawful and not in breach of any fiduciary or other duty.[57]

(b) In deciding whether there has been conduct which is oppressive, unfairly prejudicial or unfairly discriminatory, the court is required to undertake 'an evaluative exercise in which potentially competing considerations are brought to account'.[58] The conduct of a minority shareholder, for example, and whether they have baited the majority, is also relevant in assessing the gravity of any allegation of oppressive conduct.[59]

(c) Individual acts that do not meet the description laid down by s 232 might collectively meet that description,[60] and there may be conduct which is relevantly part of the overall story but which does not independently justify a finding of oppression under the section.[61]

(d) In determining whether there is oppressive conduct in any particular case, an exposition of the case law by reference to common instances of oppression can be helpful but should not replace the 'application of the statutory test directly to the fact of the case in issue'.[62]

(e) The statutory test and available relief contained in ss 232 and 233 'are to be read broadly. The imposition of judge-made limitations on their scope is to be approached with caution'.[63]

(f) The remedy is available in respect of conduct of both shareholders and directors. The test is whether, objectively, in the eyes of a commercial bystander, there has been unfairness. Where the conduct is that of a director, the bystander is taken to be a director.[64]

520 The first six pleaded acts form the first phase of oppression between 2009 and 2012. The impugned acts form part of, or are said to be explained by, the financial pressure strategy, commencing with the financial pressure email. In part 1, I have set out some of the facts that surround this strategy. Before turning to deal separately with each pleaded instance of oppression, it is convenient that I repeat my understanding of how the financial pressure strategy was implemented.

521 Immediately after Mr Tsialtas resigned from the Connective companies, Mr Lees, Murray Lees, and Mr Haron adopted a strategy to prevent Slea from selling its shares to a third party and sought to force Slea to sell them its shares for a price below their true value. The strategy involved leading Mr Tsialtas to believe that they were open to Slea selling its shares to a third party but, in reality, ensuring that Slea could not do so and leaving them as the only potential buyer for the shares. They also imposed financial pressure on Mr Tsialtas by denying him dividends from the Connective companies and, at the same time, ensuring that they were well remunerated, and that the profits of the Connective companies were reduced to Slea's detriment. Further, they tried unsuccessfully to change the constitutions of the Connective companies to enable payment of dividends to them but not Slea.

522 As discussed above, Murray Lees and Mr Haron agreed to pursue the version 2 proposal to acquire shares from Slea, which would leave Slea with 25%, and no buyer other than themselves. In addition, under the proposal, if the majority shareholders held 75% of the shares, they could issue a separate category of shares to themselves but not Slea, thus enabling dividend payments to holders of the new category of shares, which excluded Slea. As stated earlier, Mr Lees denied accepting the version 2 proposal. However, as there is no record or evidence of Mr Lees having rejected it, and in light of Mr Lees' behaviour in falsely leading Slea to believe that it could sell its shares to a third party when, in fact, Mr Lees had no such intention, I am satisfied that Mr Lees also agreed with pursuing version 2.

523 I am satisfied that Mr Lees, Mr Haron, and Murray Lees appreciated that applying financial pressure to Slea, and otherwise engaging in the pleaded oppressive conduct discussed below, was key to implementation of the version 2 proposal.

1****st instance of oppression (failure to pay dividends) and 2nd instance of oppression (inappropriate retention of dividends)

524 It is convenient to deal with the first and second pleaded instances of oppression together, as they both concern the non-payment of dividends.

525 Prior to June 2013, neither Services nor OSN paid dividends to shareholders. From commencement of the business until Mr Tsialtas's departure in May 2008, the non-payment of dividends appears to have been accepted, as between the principals, with income extracted from the business via management fees. However, in July 2008, shortly after Mr Tsialtas left, he enquired about the possibility of dividends being paid for FY08. He was told by Mr Lees that a dividend would not be declared for FY08 because Services had traded at break-even, due to substantial capital expenditure. Slea submits that, in accordance with the strategy set out in the financial pressure email, this was because Mr Lees, Murray Lees, and Mr Haron had taken steps, such as increasing their management fees, to decrease or remove the profits available for distribution as dividends. I find that the evidentiary basis for this submission was not established in respect of FY08.[65]

526 Regarding the following years, Slea alleges that the non-payment and retention of dividends was the result of a decision by Mr Lees, Murray Lees, and Mr Haron, in July 2009, not to pay dividends for the next couple of years or until Slea was no longer a shareholder. That approach was adopted so as to apply commercial pressure to Slea to sell its shares to Millsave and Mr Haron on favourable terms. The decision is said to be inferred from: the version 2 email, the Murray Lees version 2 assent, the Haron version 2 assent, Mr Lees' failure to contradict or oppose the version 2 email, and the Murray Lees 'text from Sof' email - all of which are referred to in the chronology of events outlined in part 1. Slea also points to Services' retained earnings for FY10, FY11, and FY12 as having been available to pay dividends.

527 I now turn to the financial statements of the Connective companies. Mr Butler prepared what he called 'special purpose financial reports' for Connective. The report for year ended 30 June 2009 was signed by Mr Butler on 8 February 2010. This report stated that the accompanying special purpose financial statements of Connective Services comprised a balance sheet as at 30 June 2009, the income statement, and a summary of significant accounting policies and other explanatory notes.

528 Under the heading of 'statement of significant accounting policies', tab one to the accounts stated that, '[t]his financial report has been prepared for use by the directors and members of the company and is a special purpose financial report. The director has determined that the company is not a reporting entity'.

529 At that stage, in 2009, Services had been providing broking services to brokers. OSN held the agreements with lenders.

530 Services altered its accounts retrospectively to reduce the disclosed retained earnings of the company. Services' retained earnings for the financial year ending 30 June 2009 were reported to be $462,767. In the 2010 report for Services, retained earnings for the 2009 year were still shown as $462,767; and for 2010, retained earnings were $1,325,977. Behind tab 3 in the report, however, is another version of the 2010 financial report. In that report, retained earnings for 2010 were shown as $355,977, and the retained earnings for 2009 were recorded as negative $527,233, which contrasts with the figure referred to above.

531 If a comparison is made of the two versions of 2010 accounts for Services, the current liability for trade and other payables increased from $505,771 to $1,495,437 in the first version - an increase of almost $1 million. The explanation for this increase can be found under note 6 of the second version, which refers to 'accrued directors' liability payable', with an amount of $990,000 recorded for 2010. In contrast, the liability of $990,000 for accrued directors liability payable does not appear in the first version of the 2010 accounts.

532 Services' special purpose financial report for the financial year ended 30 June 2011 was certified to be true and correct by Phillip Schulman, CPA, at Wellingtons. The report was signed by Mr Lees, as director, who declared that the accounts fairly represented the company's financial position as at 30 June 2011. Services' retained earnings for FY2010 were now shown as $1,325,977. Current liabilities for trade and other payables were shown as $505,437. Note 6 ('trade and other payables') no longer included an item for accrued directors' liability payable, which had appeared in the accounts for Services in the previous financial year.

533 Services' special purpose financial report for the FY2012 was signed by Mr Schulman. Mr Lees signed the directors' declaration on 8 August 2013. The retained earnings reported for FY2011 were $750,533, and $1,288,211 for FY2012. In the FY2012 report, note 6 ('trade and other payables') provides for an accrued directors' liability payable of $990,000 for both FY2011 and FY2012.

534 In its statement of claim, Slea refers to the financial statements and alleges that, at some point in time, changes were made to return accrued liability to the accounts. In summary, the directors' liability of $990,000 was shown in Services' special purpose accounts for FY2010; it was not included in the accounts for FY2011, but reappeared in FY2012.

535 As stated, Slea contends that raising the directors' liability reduced retained earnings and therefore, on paper, reduced the amount available to pay dividends.

536 Contemporaneously, and at trial, the Connective companies, Millsave, and Mr Haron asserted that the non-payment and retention of dividends was justified on the basis of the alleged Haron agreement. The minutes of Services' annual general meeting held on 1 April 2011 record that, while there was approximately $1.6 million in retained earnings, Mr Lees as chairman decided[66] that dividends could not be paid while the shareholding was disputed. Mr Haron gave evidence that he threatened to challenge the payment of dividends to registered shareholders, although he was not yet a shareholder, and subsequently commenced the Haron proceeding. The Connective companies' position is that, but for Slea's refusal to adhere to the alleged Haron agreement, a dividend would have been paid prior to June 2013. Accordingly, they say that there was no oppression because the defendants were only asking Slea to perform '[Mr Tsialtas's] contract', but Slea refused to do so.

537 Alternatively, the Connective companies say that any oppression ceased on 11 November 2011, when Mr Maloney proposed to pay dividends to Slea and Millsave on their undisputed shares; however, this was rejected by Slea. Further, the Connective companies assert that, as the non-payment of dividends was neutral between the shareholders, there was no unfair prejudice to Slea.

538 I have already recorded my finding that I am not satisfied that a relevantly binding agreement was reached. However, given the significant time dedicated to this topic at trial, I now set out my reasons for so finding in greater detail.

539 As indicated above, the difficulty facing the Connective companies in putting forward the alleged Haron agreement as an answer to the non-payment of dividends is the lack of consistency attending the particulars of that agreement as revealed at trial.

540 By the end of the trial, it was clear that not only did the specific formulation of the alleged Haron agreement vary - as between the pleaded and opened case, the evidence given, and the case as closed - but also as between the various defendants (who, it will be recalled, were separately represented). Further, the findings sought by the defendants from the Court, in respect of the Haron agreement, were not uniform. Millsave and Mr Haron each gave versions of the Haron agreement that were different from each other, and from their own pleadings.

541 What is uncontentious is that, on 10 October 2006, Mr Lees, Murray Lees, Mr Haron, and Mr Tsialtas met at the offices of Macpherson Kelley, where the parties discussed Mr Haron coming on board to the business, and becoming a 25% shareholder for a deferred purchase price of $875,000.

542 The pleaded case for each of the Connective companies, Millsave, and Mr Haron, in respect of the Haron agreement, was that an agreement was reached on 10 October 2006, whereby Millsave and Slea would sell 25% of their respective shareholdings to Mr Haron.

543 The Connective companies pleaded the Haron agreement as follows:

As to paragraph 4, they admit that neither Connective Services nor Connective OSN paid dividends prior to 14 June 2013, but say further that:

(a) by an agreement made on or about 10 October 2006 between Haron, Millsave, Slea, Connective Services and Connective OSN it was agreed that Millsave and Slea would agree to sell to Haron, and Haron would agree to purchase 25% of the shares in each of Connective Services and Connective OSN ('the Haron share sale agreement').

PARTICULARS

The Haron share sale agreement is partly oral, partly in writing and partly implied, and is alleged to have contained the following terms, namely that:

(a) Slea and Millsave would sell to Haron and Haron would purchase 25 per cent of the shares in each of Connective OSN and Connective Services;

(b) The shares currently held by Millsave and Slea in each of Connective OSN and Connective Services would either be split to enable the sale to occur or alternatively if a share split was not viable, then new shares would be issued to Haron;

(c) Tsialtas and Glenn Lees and Murray Lees agreed they would obtain taxation and/or legal advice as to the best option and method to implement the sale;

(d) The parties agreed that, in order to give effect to the agreement, Glenn Lees would arrange for a formal document embodying the agreement to be prepared, with the assistance of Macpherson & Kelley, solicitors;

(e) The consideration for the said transfers would be $875,000.00 payable upon sale of the business of Connective OSN and Connective Services or earlier at the discretion of Haron or upon the sale by Haron of his shares;

(f) Haron would commence employment in Connective OSN at the same rate as the rate paid to each of Slea and Millsave;

(g) A press release would be made concerning the Haron share sale agreement.[67]

544 On 7 August 2019, prior to trial commencing, Mr Lees prepared and filed a witness statement in which he claimed that, on 10 October 2006, there was a thorough discussion in which Mr Tsialtas, Murray Lees, Mr Haron, and Mr Lees agreed that Slea and Millsave would sell 25% of their respective shares to Mr Haron, with Mr Lees to engage Macpherson Kelley to draft formal documents embodying that agreement. At the time that it was prepared, Mr Lees' witness statement was to constitute his evidence-in-chief.

545 In its opening at trial, Slea explicitly made clear its position that the alleged Haron agreement pleaded by the defendants was not supported by the contemporaneous documentary evidence. First, the evidence indicated that the form of the transaction was not agreed upon at the October 2006 meeting; specifically, how Mr Haron was to acquire his 25% shareholding, whether by issue of shares from Services and OSN, or by transfer from Millsave and Slea. Second, the terms relating to payment by Mr Haron were the subject of ongoing negotiations. Slea submitted that the evidence established that there was no finalised agreement for the sale of shares as at 10 October 2006. An issue of shares had been contemplated, but because of the substantial tax problem for Mr Haron, the framing of the arrangement being contemplated was changed to a share sale agreement at some point in 2006, the terms of which were never finalised.

546 The cases for Mr Haron and Millsave were opened consistently with their pleaded cases - namely, that an agreement was reached on 10 October 2006 for the sale of shares by Slea and Millsave to Mr Haron - notwithstanding the issues identified by Slea in its opening.

Evidence concerning the alleged Haron agreement

547 Mr Tsialtas's evidence-in-chief regarding what was discussed at the meeting was brief:

COUNSEL: Mr Tsialtas, I just want you to do the best you can to try to remember what was discussed on that day. What can you remember about what was discussed about - and I think the word you used was - the format for how you would go forward?--- Look, I don't - I don't - I can't recall the exact words that were used or the exact words that I discussed.

HIS HONOUR: I think the - what about the substance of what was discussed? --- The substance was around could we work together, could I and my partners bring on another partner, and would we trust each other going forward.

COUNSEL: Thank you. And you've referred to the idea of - you referred before to the idea of an equal partner. What was discussed about what that would mean in relation to equity in the business? --- We were working towards the potential of a 25 per cent shareholding for Mr Haron.

548 Mr Tsialtas was cross-examined by Mr Solomon, counsel for the Connective companies,[68] in accordance with the pleaded case that an agreement was reached on 10 October 2006 to sell shares to Mr Haron. Mr Tsialtas gave consistent evidence on this point. His understanding of the meeting was

that we were working towards the goal of the 25 percent at [$875,000] but we would get legal advice on - and taxation advice on how we would structure and how we could possibly move forward ...

We were seeking advice from our lawyers as to how we could structure someone buying into the business and not actually receiving the full consideration for the - for the shares, and what ramifications it would have (a), on the business and then, (b), personally to us.

COUNSEL: From your perspective, did you leave the meeting with the expectation that a binding commitment had been made to [Mr Haron] for him to be a 25 per cent shareholder? --- No.

549 Mr Tsialtas rejected a suggestion by Mr Solomon that his evidence was a 'false reconstruction'.

550 Mr Lees gave evidence about what occurred at the 10 October 2006 meeting:

And so the four of us worked out a formulation that, um, [Mr Haron] would get a 25 per cent stake in the business. He wouldn't have to pay for it unless the business was sold or the shares were sold. A question came up as to whether it would be a transfer of shares or an issue of new shares. Um, [Mr Haron] was agnostic about that and left that to us to decide.

551 The question about the form of transaction depended upon what would be most tax-effective:

As to whether it was a share transfer or [an] issue of shares, we didn't know how that, which one of those would be most effective. It was an issue for the three of us whether, I think from a tax point of view. For [Mr Haron] it didn't matter. He said, 'Well, you sort that out, I'm happy either way'.

552 Slea submits that when Mr Lees referred to 'the three of us', he was referring to Mr Lees, Murray Lees, and Mr Tsialtas. Slea says that this evidence introduces, for the first time, a new version of the Haron agreement. In this version, it was not decided on 10 October 2006 that Slea and Millsave would sell shares to Mr Haron; instead, it was left to Mr Lees, Murray Lees, and Mr Tsialtas to decide whether shares would be sold or new shares issued. Further, this new version, according to Slea, begs the question of whether that decision was ever actually made.

553 After the meeting, Mr Lees approached Mr Kirton to get things documented. That discussion led to the email sent by Mr Kirton to Mr Lees, on 11 October 2006, which contained a document referred to as a 'thought provoker' containing a summary of information discussed the previous day, as well as a collection of other thoughts on the mechanism for Mr Haron's entry. Mr Lees stated in evidence that he had 'no recollection of talking to Paul'. Notwithstanding this response, he then gave evidence that the 'thought provoker' contained a number of Mr Kirton's own ideas, which had not been discussed at the prior meeting between Mr Lees, Mr Tsialtas, Murray Lees, and Mr Haron. Mr Kirton's ideas included the class A share rights, payment of interest, taking of security, the parties, sunset time, and the ability to redeem. Nor were the 'Key documents' referred to in Mr Kirton's email ever discussed by the four men at their meeting - specifically, share issue agreements, shareholders agreements, share class documents, and Buy-Sell agreements. On the other hand, the trigger for payment - being the sale of the company or business - 'was part of the formulation we had arrived at on 10 October'.

554 In his evidence, Mr Lees acknowledged that, as at 17 October 2006, the decision concerning how Mr Haron would get his shares was an 'outstanding point, if you like, ... whether we transfer shares or issue shares'. It is immediately apparent that this is inconsistent with the pleaded case of a final agreement to sell shares reached on 10 October 2006. On 17 October 2006, an email exchange between Mr Lees, Mr Kirton and Patrick Cussen (another of Connective's solicitors) indicates that, in fact, a share issue was initially contemplated.

555 Mr Kirton advised that a share issue would be problematic. Shares issued without consideration would be treated for tax purposes as a dividend and incur income tax under Div 7A of the Income Tax Assessment Act 1936 (Cth). The 'solution' was to structure the transaction as a share transfer. But that would also create a tax issue, as capital gains tax would be payable by Slea and Millsave, notwithstanding that they were to receive no payment at the time.

556 There were a number of meetings about the tax issue, as well as ongoing correspondence. Mr Lees gave evidence that Mr Haron was 'oblivious' to these discussions because:

It wasn't his issue that, um - on 10 October we had left things that, um, it was on our side of the net to decide which way we would do that. Um, and so he didn't care about that.

557 There was a further meeting of Murray Lees, Mr Lees, Mr Tsialtas, Mr Kirton, and Robert Warnock at Macpherson Kelley's offices in Dandenong, sometime in May 2007. Mr Lees gave evidence that, at this meeting, it was decided that Mr Haron would get his shares by share sale. Mr Lees was shown an email from Mr Kirton dated 14 May 2007, which referred to 'our meeting of the other day'. The email listed documents said to be 'required', including the 'sale of shares' agreement. The following exchange between Mr Lees and counsel occurred:

What transaction do those contracts relate to - contracts and documents? - - - Point 1?

Yes? - - - Ah, that is [Mr Haron's] buy-in to Connective.

In terms of this issue, this debate between issue of shares and sale of shares - - - ? - - - Yes.

• • • what's the status of the proposed completion of the transaction with Mr Haron at this point? - - - It's been decided it will be a share sale.

When you say it has been decided, amongst whom? - - - Ah, [Mr Tsialtas], Murray [Lees] and I.

And are you able to say to His Honour why? - - - Because we - we had received tax advice that we were happy with that, um, put our minds at rest on the CGT question. We felt we had a mechanism by which we could do the share transfer, and, um, the - the actual payment of the CGT amount - - -

558 Mr Lees went on to give evidence about the 'mechanism' proposed by the tax advice. He was asked if he could recall what was said at the meeting in Dandenong:

Are you now able to recollect that meeting? Can you - - - ? - - - I do have a recollection of the meeting, yes.

All right. And sticking to what you can remember, what can you remember being said? - - - So a mechanism was presented to us whereby if we made an election to roll the proceeds of the sale into superannuation, then, um, we would not be required to actually pay the CGT until such time as we received the funds.

...

Yes? - - - Um, there was a discussion around that where we - ah, it appeared to me that we all agreed that, um - - -

...

And what can you remember? - - - ? - - - And there was a discussion between the three of us, um, that I - - -

...

Yes? - - - Um, and perhaps if I speak to my - I'll just speak to what I believe. That, um, if that advice was right - and - and I had no reason to believe it wasn't - then, um, I think we calculated the amount to be paid into super was, um, a couple of hundred thousand dollars or something like that. And that was a decision that I was very comfortable with, that, um, if we'd received the money, it meant there'd been some liquidity event in the business, and so to take some part of the proceeds of that and put that into super, I was not concerned about at that - that's how I satisfied myself.

And are you saying that's what you said? - - - That was the discussion that was had between us and - - -

No, just breaking it down, though? - - - Yes.

What did you say about that? - - - I said I was happy with that.

Right. What do you recollect, if at all, Mr Murray Lees and Mr Tsialtas saying about that? - - - It was - it's my recollection and it was my feeling that they agreed with my position but that's - that's what I recall.

559 The share sale agreement was referred to in emails sent by Mr Kirton to Mr Lees on 23 April, 14 May, and 14 June 2007. The 14 June 2007 email stated:

I confirm that there are still several issues need to be finalised regarding payment terms, timing and interest, etc. I will provide what I consider to be fair and appropriate for the circumstances (along with some explanation) and then you can use this for further discussions.

560 Mr Kirton sent a draft share sale agreement to Mr Lees on 22 June 2007. The draft agreement included terms providing for payment in full before the end of a five-year term, interest, and the application of 50% of Mr Haron's profit distribution each financial year to the purchase price. Mr Lees said that these were more of Mr Kirton's ideas, and that they were contrary to the deal with Mr Haron on 10 October 2006, which provided that there would be no payment until the business was sold.

561 Despite Mr Kirton's urging that the agreement should be concluded before the end of the financial year, it was never signed. Mr Lees said: 'I did nothing with it ... I didn't have the guts to go back to [Mr Haron] and say, "Actually our lawyers have said we should do this"'.

562 In cross-examination, Mr Lees was asked when he had decided to give evidence that what had been said at the meeting on 10 October 2006 was that it could be an issue or a sale of shares. Mr Lees said that it had always been his recollection that it could be an issue or a sale. Mr Hodge, counsel for Slea, showed Mr Lees his witness statement, as well as the Millsave defence and the Connective companies' defence, which Mr Lees confirmed having given instructions to file. Mr Hodge put to Mr Lees that all were inconsistent with Mr Lees' purported recollection that what was, in fact, decided was that it could be either a share issue or a share sale, and that it would be left to Mr Lees, Murray Lees, and Mr Tsialtas to decide. Mr Lees responded that part of the pleaded particulars referred to an issue of shares, but conceded that he had not suggested on 10 October 2006 that the following was said: '[W]e'll sell shares by doing a share split, and [if] that's impossible, then we'll do an issue of shares'. Mr Lees conceded that the pleaded defence was therefore not consistent with the recollection that he gave in evidence, but asserted that he did not realise the inconsistency until that moment.

563 Mr Lees agreed that the deal reached on 10 October 2006 was not that Slea had to sell part of its shareholding, but that this was 'where we ended up' after receiving tax advice. Mr Lees asserted that he, Murray Lees, and Mr Tsialtas had made that decision in about May or June 2007. When it was put to him that, based on his evidence, he did not believe that there was an agreement for a share transfer prior to May 2007, he agreed. This was despite the fact that, for 11 years, he had maintained that such an agreement was reached on 10 October 2006. Mr Lees could not explain why this version had never been pleaded on his behalf, nor why he had permitted the Connective companies to partly fund the Haron proceeding, which also alleged an agreement apparently inconsistent with the belief that he held.

564 It was put to Mr Lees that this new version or explanation had emerged because the documentary evidence established that his assertion regarding the 10 October 2006 agreement was a lie. Mr Lees rejected this claim, and stated that he might have conflated the 'deal' agreed on 10 October 2006, with what had been agreed later in May 2007.

565 Mr Lees was asked whether he remembered Mr Tsialtas agreeing that it would be a share transfer, rather than an issue of shares, at the May 2007 meeting. This prompted the following exchange:

I don't remember anyone specifically using the words 'agreed', but my recollection is that there was a discussion at which I took the feeling that we had reached consensus: 'Yes, this is the way we'll go'. So I - I can't specifically point to those words.

COUNSEL: Mr Lees, all you're really saying is this, isn't it? That coming out of that meeting on 4 May 2007, you had the sense that, given the tax advice, it was likely that you would do it by way of share sale rather than issue? --- No. I - I would say I had more than a sense; that I had the - the firm belief that that's what we would do.

COUNSEL: You had a firm belief that that's what you would do? --- Yes. I think so, yes.

COUNSEL: Yes. And you don't actually recall any agreement by anybody to that course? --- Well, it depends on - on how you define it. I don't remember there being a show of hands or - it was a discussion, the end of which - I felt that there was a consensus view that everyone said, 'Yes, that's the way to do it ...' Um, and so I took it from that that that's what we would do.

566 The cross-examination then turned to the potential purchase terms proposed by Macpherson Kelley in the draft agreements. Mr Lees agreed that while he, Mr Tsialtas, and Murray Lees were hoping to have an interest term, and a term requiring Mr Haron to pay back a percentage of distributions as the purchase price, they had not reached a final position on those terms. Further, Mr Lees maintained that he had never discussed the purchase terms sought with Mr Haron:

COUNSEL: And you gave some evidence a few days ago that even though you had these draft agreements, you didn't take them to Mr Haron?---Yes, that's right.

And that was not withstanding that your solicitors had said, 'These documents need to be finalised and signed prior to 30 June 2007 as the effective date will be the time [Mr Haron] joined'?---Yes.

And your explanation as to why you didn't speak to Mr Haron before 30 June 2007 is what?---Um, I didn't have the courage to try and change the deal.

Now that doesn't make any sense, though, does it ... We now know that the only thing you remembered having been agreed as at 10 October 2006 in relation to the mechanism was that it could be either issue of shares or share sale?---Yes, that's right.

And issue of shares was very disadvantageous for Mr Haron?---Yes, that's right.

And sale of shares was disadvantageous for you and Slea?---Yes, that's right.

And addressing that disadvantage was one of the reasons why there were those purchase terms?---Ah, no, I don't, I don't agree with that.

Do you say notwithstanding that the alternative for Mr Haron was an issue of shares, which was disadvantageous for him, you were still too embarrassed to go back to him and tell him that 'the alternative to an issue of shares is a sale of shares but then we'll need some reasonable commercial terms'?---It reflects poorly on me but that's exactly what I say.

567 Accordingly, Mr Lees' evidence did not support the pleaded case that an agreement with particular terms to sell the shares to Mr Haron was concluded on 10 October 2006. Instead, he posited a different version, which was that, on this date, it was agreed that Mr Lees, Murray Lees, and Mr Tsialtas would determine the mechanism or transaction structure through which Mr Haron would obtain equity in Connective. This form of the agreement was not pleaded or opened by the Connective companies, Millsave, or Mr Haron, notwithstanding that it was Mr Lees who provided the instructions for the pleading of the Connective companies and Millsave. No application was made by the Connective companies, Millsave, or Mr Haron to amend their pleaded case following Mr Lees' evidence. Further, this form of the agreement was not put to Mr Tsialtas contemporaneously, or in cross-examination. In the long history of this matter, this was the first occasion on which there was a suggestion that an agreement for the sale of shares was made in May 2007.

568 That decision or agreement, in turn, was alleged to have been made by the three principals at a meeting in May 2007. However, the highest that Mr Lees could put this was that he had a 'feeling' or a 'firm belief' that the three principals had reached that decision. Mr Lees admitted that the terms pursuant to which the principals agreed to transfer shares to Mr Haron were not finalised. I have particular doubts about his evidence that he was reluctant to return to Mr Haron with commercial and reasonable purchase terms, notwithstanding that, on his evidence, all that had been agreed with Mr Haron up to that point was that Mr Lees, Murray Lees, and Mr Tsialtas would determine which transaction would best suit them. It must be remembered that all parties involved were experienced and commercially savvy businessmen. I do not consider this convincing or cogent evidence.

569 Mr Haron gave evidence about the 10 October 2006 meeting. He said that it was a short meeting, about 30 minutes. Mr Lees, Mr Haron, Murray Lees, and Mr Tsialtas were in attendance. Mr Lees 'refreshed' and 'reaffirmed' the terms of the agreement that had been previously discussed, including at the meeting of 28 September 2006, which according to Mr Haron were:

[M]y having a 25 per cent shareholding of the business and coming on board as a shareholder and principal of the business. Um, we also referred back to the purchase of that 25 per cent share being $875,000, um, which, um, was based on the 25 per cent based on a value of the business, being at $3.5 million. Um, and we agreed that [Mr Tsialtas] and [Mr Lees] and myself would be remunerated on the same base salary and that I would commence work, um, the - the following week.

...

Was there any discussion had by you at the meeting as to how you would pay that price?---Yeah. It's reaffirmed - as per our discussion on 28 September, it was reaffirmed in that meeting on 10 October that that $875,000 would be payable on the sale of my shares or the sale of the business.

570 Mr Haron also gave evidence about how he was to get his shares - whether by issue or transfer:

COUNSEL: And did you have any discussion at the meeting relating to how the agreement that you would become a shareholder as to 25 per cent would be given effect? --- On the 10 October meeting?

COUNSEL: Yes?--- Yes. Um, we did, Your Honour. [Mr Lees] mentioned that there would have to be, ah, either shares issued - new shares issued or the shares to be split, um, to enable the shares to be transferred to me or the shares to be, um - um, given to myself. Um, he said he would deal with that matter. Um, [Mr Lees] had a legal background. Um, he knew the lawyers well, so I left it to him to deal with that, um, from that point on - with him and [Mr Tsialtas].

571 The directors shook hands on the agreement and Mr Haron left. Mr Lees said that he would remain behind to discuss the share arrangement with Mr Kirton.

572 Under cross-examination, Mr Haron agreed that, at the meeting of 10 October 2006, none of the parties knew about the tax and other implications of structuring the transaction - by which, I understood that no one said they knew of these matters. Mr Haron accepted that the parties agreed they would need to obtain legal advice on how to proceed.

573 The cross-examiner put to Mr Haron that experienced business people would be unlikely to enter into a binding agreement to sell 25% of a shareholding, with no money payable up front, and without understanding the tax consequences; and it was not possible to understand the tax consequences, because a decision on the form of transaction had not yet been reached. Mr Haron disagreed with this proposition. Mr Haron gave evidence that Mr Lees would have sought legal advice in respect of the structure best suited to the agreement, and 'obviously would involve [Mr Tsialtas] in that conversation'. Mr Haron persisted in his evidence that an agreement had been struck, notwithstanding that significant issues remained undecided.

574 Later, in cross-examination, Mr Haron was asked who had the power to decide which form the transaction should take, given that the different options had disadvantages for either Mr Haron, or for Slea and Millsave. The following exchange occurred:

COUNSEL: The difficulty with that is you were all in a different position ... If it was a share issue ... you needed to pay tax?---Yes.

And [Mr Tsialtas] and [Mr Lees] wouldn't? - I understand what you're saying.

Yes. So who got to resolve that conundrum? What if [Mr Tsialtas] and [Mr Lees] said, 'We don't think we want to pay tax on this. You're coming into the business and not paying any money upfront, we're giving you shares, we don't want to have a tax liability, you pay the tax' and you turned around and said, 'No, no, I don't want to pay the tax because I don't have the money, that's why I can't pay for the shares. You [p]ay the tax'. Who got to decide in that situation? How was that to be resolved?--- Well that was a - as I understood it, that was for [Mr Lees] to determine and resolve.

Oh, that was for [Mr Lees]?---Yes.

Unilaterally. Was that agreed?-Um, that [Mr Lees] would make the decision?

That he got to make the decision for [Mr Tsialtas], for you, for himself, for everyone, he got to make the decision?---He would gather the advice and then we would make a decision, I guess, together, and [Mr Tsialtas] would have to be considered in that as part of, being part of the decision.

So it was a consensus-based mechanism in this agreement to resolve this fundamental issue? And what if there was no consensus, what if you couldn't agree?---Well, in that case for me to get the 25 per cent, it would probably require me to capitulate ... and be the one paying the tax, wouldn't it?

I see. And was that all part of the agreement, you say?---Um, no. The agreement was just a very simple agreement about me getting a 25 per cent shareholding in Connective.

You've said that a number of times. The problem with this simple agreement is you hadn't worked out how the sale was going to occur and that raised problems, as you know and as you've accepted for everyone for tax returns, and what I'm putting to you is it makes no sense, and you understood it made no sense at the time, for there to have been this - someone gets to make a decision about how it will happen and who bears the tax liability, you haven't said. You said at first that [Mr Lees] had a veto, then you said it would be a consensus-based decision making, and now you're saying it wasn't part of the agreement, and what I'm putting to you is that just makes no sense, Mr Haron ...---It makes no sense but that's what we agreed at the time.

575 Mr Haron's evidence before me therefore was also contrary to his pleading in the oppression proceeding, and in the Haron proceeding, that an agreement for sale had been reached on 10 October 2006. Mr Haron said that there was no agreement for sale but said, variously, that it was left with Mr Lees, or Mr Lees and Mr Tsialtas, or Mr Lees, Mr Haron, Mr Tsialtas, and Murray Lees, to decide how Mr Haron would achieve his 25% shareholding.

Closing submissions on the alleged Haron agreement

576 In light of the evidence given by both Mr Lees and Mr Haron, the version of the Haron agreement pleaded and opened by the Connective companies, Millsave, and Mr Haron was unsustainable.

577 In written closing submissions, which were substantially adopted in oral closing address, counsel for Mr Haron submitted that it was agreed, on 10 October 2006, that the terms upon which Mr Haron would join the Connective companies were 'apparently' that he would receive 25% of the shares in the Connective companies, whether by way of transfer from existing shareholders or a new issue of shares, and that Mr Lees would obtain advice and decide which form the transaction would take. Mr Lees' evidence was that this decision was made in May 2007.

578 In any event, counsel submitted that it was not necessary for the Court to determine whether the 10 October 2006 agreement was legally enforceable, as the significance of Mr Tsialtas, Mr Lees, and Mr Haron's understanding of what was agreed at the meeting was solely to provide the context in which Slea's claims of oppression must be considered. And in that regard, Mr Haron and Mr Lees unequivocally believed that they and Slea were bound to ensure that Mr Haron received a 25% shareholding.

579 Millsave's written closing submissions purport to adopt Mr Haron's written submissions on the topic of the 10 October 2006 meeting. However, in oral closings, counsel for Millsave, Mr Collinson, departed not insignificantly from this position. Counsel introduced the topic by stating that Millsave put a 'three-layered submission' in relation to the Haron agreement: first, that the agreement was binding at law; second, that Mr Lees and Mr Haron reasonably believed it was binding; and third, on any view of the matter, it was 'morally binding'.

580 Given that Mr Lees' evidence was inconsistent with the pleaded case, counsel for Millsave, in closing address, framed the relevant binding agreement as one made orally on 10 October 2006, in which Mr Haron would get equity of 25% for a purchase price of $875,000 that would be paid on the sale of the shares or of the business. Part of the oral agreement involved Mr Lees deciding whether the process of issuing 25% in equity would be through an issue of fresh shares, or a transfer of shares by the existing shareholders, Millsave and Slea.

581 Millsave submitted that the fact that the choice of share issue or transfer had been left to Mr Lees did not necessarily undermine the proposition that a contract had been formed at the meeting. On this point, counsel referred to two cases, Thorby v Goldberg[69] and Ipex Software v Hosking,[70] which were said to stand for the proposition that if parties make an agreement, but one party leaves some latitude to the other party to make a choice about the way in which a particular matter might be implemented, then the first party is taken to accept the worst outcome that the second party might choose. Applying that to the facts of this case, Mr Collinson submitted that '[Mr Lees] and Murray [Lees] and the others' could have chosen to insist upon an issue of shares because that was advantageous to them, but as events turned out, 'everyone - that is, relevantly, Murray, Tsialtas and [Mr Lees] - [has] agreed that the transaction ... is to proceed by way of a transfer of shares'.

582 In conclusion, Mr Collinson submitted that, for the purpose of analysing the oppression case, it was unnecessary for the Connective companies to establish that Mr Haron would inevitably have succeeded in his contract claim against Slea; that is, a finding on the binding nature of the 10 October 2006 agreement was unnecessary. It was sufficient that, objectively, the agreement appeared to be enforceable and the parties were entitled to treat it as enforceable, and did in fact treat it as enforceable. Having reviewed the materials, it is not entirely clear to me whether Mr Collinson abandoned the finding sought earlier on the agreement being legally binding, or whether he was merely clarifying the second limb of his three-limb argument.

583 The Connective companies adhered to their pleaded case, noting that a term of the pleaded agreement was that shares would either be transferred or issued. They also adopted Millsave's submissions in relation to Thorby v Goldberg[71] and Ipex Software v Hosking,[72] although they did not specify who had the contractual power of deciding the form of the transaction.

Consideration and conclusion on the Haron agreement

584 I am not satisfied that a binding agreement was entered into on 10 October 2006, as pleaded in the Connective defendants' defences - the evidence of Mr Lees and Mr Haron makes such a position untenable. I think it inherently unlikely that the parties got any further than agreeing in principle to Mr Haron becoming a 25% shareholder for the consideration of $875,000. I find, on the balance of probabilities, that everyone at the meeting on 10 October 2006 recognised that advice should be obtained on tax and associated issues before agreement could be reached on the method of achieving Mr Haron's 25% shareholding.

585 I reject the contention that the parties at the 10 October 2006 meeting contractually agreed to leave it to Mr Lees, or Mr Lees and a combination of other persons, to decide what form the transaction would take and thereby complete the terms of a binding contract. The number of versions propounded in this regard by the relevant defendants, which differed at times between their own evidence and the submissions of their counsel, dissuades me from such a finding. The Connective defendants' final case as to who was contractually left with the power to decide what form the transaction would take is still unclear. For this reason, I do not consider that the authorities of Thorby v Goldberg[73] and Ipex Software v Hosking[74] provide any real assistance to the defendants.

586 Even if I were to accept that an agreement was made on 10 October 2006, which included a term that the form of the transaction would be decided later, it is only Mr Lees' evidence that says this decision was made in May 2007. No one else present at the meeting was called to give evidence, apart from Mr Tsialtas, and the fact of this later agreement was not put to Mr Tsialtas. I have already indicated my view of Mr Lees' evidence in general and note that, in this regard, it amounts to no more than an assertion of a feeling that all present had agreed.

587 A final gasp of the alleged Haron agreement was the submission that, even if no such agreement was made, nevertheless, Mr Lees, Murray Lees, and Mr Haron believed that such an agreement was made; therefore, in judging whether their conduct has been oppressive, the Court should find that Mr Lees, Mr Haron, and Murray Lees were genuine in their actions in seeking to enforce the agreement - the actions of which are complained of in the oppression proceeding. Again, this case was not pleaded. I note that this submission fails to fully engage with the objective nature of the oppression enquiry; specifically, that the absence of bad faith does not overcome conduct which is objectively unfair.[75]

588 In any event, Murray Lees did not give evidence; and in the absence of such evidence, I cannot be satisfied that he held any such belief. I am not satisfied that Mr Lees held any such belief; the contemporaneous correspondence shows Mr Lees consistently asserting that a binding agreement was entered into for Slea to sell a portion of its shares to Mr Haron on 10 October 2006, notwithstanding Mr Lees' evidence during the trial that he, in fact, always believed something different. Finally, I am not satisfied that Mr Haron believed a binding agreement was reached. His evidence was also contrary to his contemporaneous pleaded case. I consider that he had a hope or an expectation that he would receive 25%, but must have known that advice was being sought and an agreement would be reached once all relevant implications for the parties were understood.

Conduct supporting the existence of a binding agreement

589 A final matter must be briefly addressed. The Connective defendants assert that Mr Tsialtas also conducted himself as if he were bound by a relevant agreement. They rely on the press release prepared by Mr Tsialtas shortly after the 10 October 2006 meeting, which refers to Mr Haron joining Connective as a 'principal and shareholder' and as a 'stakeholder', as well as the information memorandum prepared by Mr Tsialtas around the time of his departure from the Connective business, in which he described himself as a 25% shareholder, writing: 'In October of 2006 the shareholders agreed to sell 25% of Connective to [Mr] Haron for a consideration of $875,000 that valued Connective at $3.5 million at that point in time'.

590 I do not consider that these submissions assist the defendants. The content of these documents is not inconsistent with Mr Tsialtas's later evidence, which I accept, that the parties were hoping to achieve or were working towards Mr Haron becoming a 25% shareholder. Mr Tsialtas gave evidence that, even following his departure from the Connective business, he was still working on selling 8.3% of his shareholding to Mr Haron. He ceased pursuing the transfer of shares to Mr Haron when acceptable terms were unable to be reached. Under the proposals formulated by Macpherson Kelley, Slea would not be paid for the shares transferred to Mr Haron until the business was sold, which could have been many years hence. The terms being proposed to Slea were not acceptable.

591 Further, in any event, the defendants have had to disclaim that the relevant agreement was one reached on 10 October 2006 to transfer shares. Even if Mr Tsialtas thought that there was an agreement to sell or issue shares to Mr Haron, and that this agreement included a term that the relevant mechanism would be decided later, he would have understood that he was to be included in that later decision. In the absence of any convincing evidence that Mr Tsialtas was so involved, he cannot have thought he was bound to any such agreement.

592 I am satisfied that Mr Lees, Murray Lees, and Mr Haron were all aware that there was no resolved agreement as to how Mr Haron would achieve his 25% holding in the Connective companies, when they sought to justify their behaviour on the sole basis that it was engaged in to induce Slea to fulfil its contractual obligations relating to Mr Haron obtaining a 25% interest in the Connective companies. In those circumstances, their conduct needs to be assessed in this light.

593 Establishing merely that a company has failed to pay a dividend, or as large a dividend as may be possible, is not sufficient to constitute oppressive conduct. If it can be shown that dividends have been withheld or fixed at a certain rate, pursuant to 'a properly exercised commercial judgment',[76] there will be no oppression. For example, this may be because the dividend policy avoids a tax liability and has been the accepted practice for many years, including by the applicant;[77] or because the dividend policy results in an increase in shareholder funds;[78] or because, in the nascent years of a private company, owners may wish to retain as much capital as possible in the company.[79] While a dividend policy may be fixed for justifiable commercial reasons, a failure to reconsider the dividend policy in light of the company's changed circumstances may be oppressive,[80] particularly where directors have taken steps to review their own remuneration.[81]

594 Where the failure to pay a dividend or the payment of low dividends forms part of a plan or strategy by the majority shareholders to operate the company in their own interests, or to their own benefit, this may constitute commercial unfairness or oppressive conduct.[82] While a failure to pay declared dividends to the minority shareholder, where the majority shareholder's dividends are fully paid, is clearly discriminatory and unfair,[83] a dividend policy that treats shareholders in the same manner may still be unfairly prejudicial to a member.[84] This is because the section imports the notion of 'unfairness', and conduct which prejudices all members may be unfairly prejudicial to only some members.[85]

595 An objective appraisal of the surrounding circumstances, as a whole, may result in a finding that a purported commercial justification does not withstand close scrutiny.[86] A commercial justification that ignores the company's legal obligations, and the legitimate and mutual obligations of its shareholders, is not commercial justification at all.[87]

Consideration and conclusion on 1****st and 2nd instances of oppression

596 The only justification proffered for the failure to pay dividends is the existence of the alleged Haron agreement and Slea's failure to honour it. In light of the conclusions expressed above, I find that the alleged Haron agreement provides no justification or defence for the behaviour of the directors in not paying dividends to Slea. The consistent assertion, in the face of legitimate opposition, that there was a concluded agreement, and the tying of the payment of dividends to the performance of that agreement, involved the directors preferring the interests of a non-shareholder, Mr Haron, to the detriment of Slea. I am satisfied that, in the eyes of a commercial bystander, there has been conduct by the directors in not paying dividends to Slea that is so unfair, that a reasonable director who considered the matter would have thought the conduct was unfair.

597 I also consider it open on the evidence as a whole to conclude, which I do, that the restriction on the payment of dividends was used by the directors as a reaction to the lack of progress in convincing Slea to accept a legal position (that there was a binding agreement with Mr Haron pursuant to which Slea was to transfer a portion of its shares for no or little upfront payment in circumstances where there could be a tax liability) which Slea declined to accept as valid. In my opinion, Slea's refusal to accept that there was a binding obligation on it to transfer shares to Mr Haron was reasonable. In my opinion, the conduct by Millsave and Mr Haron in restricting the payment of dividends alone would be sufficient to constitute oppressive conduct.[88] I also consider that Mr Maloney's interim dividend proposal does not overcome this finding of oppression; his behaviour was an attempt to force a position on Slea (albeit a more favourable position than no payment of dividends at all) with respect to the enjoyment of its legal rights to which it had declined to agree.

3****rd instance of oppression (inappropriate payments to directors) and 4th instance of oppression (inappropriate recording of directors' fees as unsecured loans)

598 In the third and fourth pleaded instances of oppressive conduct, Slea complains about payments made by Services to Mr Lees, Murray Lees, and Mr Haron, and the way in which certain payments and liabilities were recorded in financial statements between FY09 and FY13.

599 The actual accounting treatment of the payments and liabilities, as distinct from their allegedly oppressive character, is not generally in dispute.

The financial arrangements underpinning payments to the principals

600 At the commencement of the Connective business, there were three principals, Mr Tsialtas, Mr Lees, and Murray Lees. Mr Tsialtas and Mr Lees were directors of the Connective companies, Murray Lees was not. The principals obtained income from the business via management fees, which were paid on invoices rendered to Services; dividends were not paid. Murray Lees and Mr Lees shared management fees approximately equivalent to what 1.2 people working in the role would receive.

601 Mr Haron commenced in the business around 16 October 2006, receiving an amount approximately equal to that paid to Mr Tsialtas, and that paid to Mr Lees and Murray Lees together. The exact classification of the payments at this stage is not clear. Mr Lees gave evidence that the 'characterisation of [the payments] ... was, frankly, quite amorphous. It was just - we got paid money'. Despite joining as a principal of the business in October 2006, Mr Haron was not registered as a director with ASIC until July 2011.

602 When Mr Tsialtas left the Connective business, he was paid management fees up to June 2008. The management fees recorded for FY08 were $554,562. This accords with Mr Tsialtas, Mr Haron, and Mr Lees and Murray Lees together, receiving approximately $15,000 per month. After Mr Tsialtas's resignation as a director, Mr Lees, Murray Lees, and Mr Haron decided to substantially increase the amount of management fees that they were being paid - an increase potentially in the order of 50%. Mr Tsialtas gave evidence that, in October 2009, Mr Lees advised him that they had increased their management fees to $23,000 per month. No effort was made to determine what an appropriate market rate was, for example, by engaging a relevant consultant; rather, they just decided between them what they would be paid. The only benchmark that they considered was the amount that Mr Haron had been paid as CEO of FAST, prior to joining the Connective business. The three paid themselves equal amounts, notwithstanding that, prior to Mr Tsialtas's departure, Murray Lees and Mr Lees had shared management fees equivalent to 1.2 people, on the basis that Mr Lees was spending approximately 80% to 90% of his time in the Connective business, with Murray Lees making up the balance.

603 Mr Haron gave evidence under cross-examination that, at one stage, they moved to a salary plus management fee structure. Agreeing to a suggestion by the cross-examiner, Mr Haron thought that this might have occurred in FY08; however, the evidence suggests that this may have occurred in FY09, as a marked increase in salaries can be seen in that year.

604 It is convenient to set out here, in tabular form, the management fees and salaries from FY08 (the last financial year in which Mr Tsialtas was a director) to FY13:

605 As is evident, the management fees recorded in the financial statements decreased substantially in FY09 and FY10; however, the actual amounts received by Mr Lees, Murray Lees, and Mr Haron, in fact, increased. Pursuant to a scheme said to be recommended by Mr Butler as being more tax advantageous, the principals decided in about late 2009 to re-classify the amounts paid as management fees to loans from Services to their associated family trusts. This scheme was repeated in FY10. The nominal management fees of $40,000 and $180,000, recorded respectively for FY09 and FY10, were said to be treated as salaries on which personal tax would be paid by the principals.

606 The loans recorded in the Services' special purpose financial report for the year ended 30 June 2010 were:

The Lees Family Trust (associated with Murray Lees)

Googleflex Nominees Family Trust (associated with Mr Haron)

607 In evidence, Mr Lees said that the advantage obtained by adopting this approach was not the reduction or avoidance of tax, but the deferral of tax until the following financial year. He attempted to explain the arrangement, as (he said) it had been explained to him by Mr Butler, noting however that he may not have fully comprehended the scheme himself. He understood that, in one financial year, he would get paid in cash, but in the financial records of the company it would be treated as a loan. In the following year, he would be paid a director's fee that would operate to pay out the previous year's loan.

608 However, the actual and accepted effect of this scheme was to transfer the burden of income tax liability from Mr Lees, Mr Haron, and Murray Lees, to Services - because the payments were treated as loans to trusts, the trusts did not have to pay income tax. By classifying the amounts that were, in truth, management fees as loans, one of the company's most substantial expenses was removed, causing profits to increase, and thereby attracting a significant income tax liability. To demonstrate, for FY08, Services' profit before income tax was recorded as $63,687, with an income tax expense of $19, 106. For FY09, after the scheme was implemented, Services' profit before income tax was recorded as $615,146, with an income tax expense of $209, 550. For FY10, the profit before income tax was recorded as $1,243,888, with an income tax expense of $380,678. In their evidence, Mr Lees and Mr Haron both accepted that a consequence of the scheme was the disadvantage to Services of incurring a significant income tax liability, which it would not have done but for the scheme.

609 Further, Mr Lees' claim that the scheme only deferred tax, with the trusts receiving an amount as income to clear the loan in the following year, was not borne out on the evidence. As noted, the scheme was repeated in FY10, and Mr Lees accepted that his family trust had received approximately $224,000, in relation to which it was likely that no income tax had been paid. In addition, despite maintaining his position that the scheme was only to defer tax, Mr Lees could not recall whether he had ever submitted amended financial returns.

Mr Maloney's changes to the remuneration system

610 In July 2011, Mr Maloney became a non-executive director of Services and OSN. Concerned by this accounting treatment, he set about reversing it and implementing 'a more normal remuneration system'. Mr Maloney initially gave evidence that he took steps to unwind the system, mainly because he did not understand Mr Butler's explanation for it, and denied being concerned that the company might be complicit in some improper conduct, in respect of how remuneration was structured. However, upon being shown his contemporaneous notes, which recorded the words, 'is company complicit in its rem[uneration] structuring', he conceded that, at the time, he must have at least questioned whether this was the case.

611 For FY11, the amount of loans recorded substantially decreased, and the amount of management fees increased from $180,000 to $1,455,000. It was put to Mr Lees, in cross-examination, that the amount of management fees being paid was increased substantially, so that the loans could be partially repaid. Mr Lees agreed, explaining that he understood the increased payment as 'recognising the management fees from previous years to pay down the loans'. In previous years, the principals had been receiving loans and were not being paid income. Accordingly, there was a liability to pay the company; however, recognition of the work performed or services rendered by Mr Lees, Murray Lees, or Mr Haron had not been recorded.

612 In this context, they came up with the idea of 'writing back' an 'accrued directors liability' of $990,000 for FY09, FY10, FY11, and FY12 into the accounts, which was said to reflect the amount owed to the principals. Mr Lees initially gave evidence that this was done in late 2011 or early 2012, at the insistence of Mr Maloney, although the evidence later showed, and Mr Lees agreed, that it must have in fact been created and added to the financial statements between 7 March 2013 and 8 August 2013.

613 A consequence of retrospectively including an accrued directors' liability of nearly $1 million in the accounts was that retained earnings for previous financial years were also retrospectively reduced. The financial statements show that, originally, retained earnings recorded for FY10, FY11, and FY12 respectively were $1,325,977, $1,740,532, and $2,211,956. After introduction of the accrued directors' liability into the accounts, sometime in 2013, the retained earnings recorded for FY10, FY11, and FY12 decreased respectively to $335,977, $750,533, and $1,288,211.

614 Neither the accrued directors' liability, nor the related loans made to the family trusts, appear in the financial statements for FY13. There was some divergence in the evidence of Mr Lees and Mr Haron in respect of how the loan amounts were cleared.

615 Mr Lees agreed that the accrued directors' liability was written off against the loan amounts, but rejected the suggestion that the loans made to the family trusts were never repaid or were forgiven. He explained that, for every dollar paid to him, the loan recorded to his family trust would go up by one dollar. The outstanding loan matched an equivalent liability owing to him for the work that he had performed. He accepted that, when adjustments were made in 2013 to unwind these transactions, the adjustments were all made in the books of the company with no actual monies repaid. Later, despite this original evidence, he also agreed that he did not know exactly what had been done to clear out the loans, or which amounts were set off against others.

616 Mr Haron was also asked to explain how the loans that had built up were repaid. He could not recall, save to confirm, as suggested by the cross-examiner, that he had not been required to repay the loans. Mr Haron was also unable to recall the management fees paid to him in the relevant years being decreased or dropped to enable repayment of parts of the loans. This was despite his earlier evidence that the process of repaying the loans involved the principals forgoing further payments.

617 Mr Lees accepted that, after the loan transactions had been unwound on paper, Services was not reimbursed for the additional income tax that it had incurred. A faint suggestion was made that the income tax payable in later years changed as a result of the transactions, such that the 'income tax situation for the company washed itself out'; however, Mr Lees could not provide further details, such as whether amended tax returns were lodged, or why the accountant (Mr Schulman, Wellingtons) responsible for undoing the scheme was not called.

618 Notwithstanding Mr Maloney's concern with the loan system of remuneration, it appears to have restarted in FY12.

Slea's submissions on remuneration of the principals

619 Slea alleges that the remuneration of the principals, and the accounting treatment evident in the financial statements of Services, has been both oppressive to it within the meaning of s 232(e) of the Act, and contrary to the interests of the members as a whole, within the meaning of s 232(d) of the Act.

621 First, Slea says that the loan scheme, by which distributions were made to the principals, disadvantaged the company for the benefit of the principals by shifting the income tax burden that should have been borne by them to the company, and by extension, to its members. Recording the payments as loans was therefore not in the best interests of Services, and there was no resolution of the Services' board agreeing to pay management or directors' fees in this manner. Further, Slea contends that the scheme disadvantaged it especially, as while Millsave (as a member) was also disadvantaged by the tax consequences, Slea was not receiving loans. Slea also submits that, on the basis of the evidence given by Mr Haron, the Court can be confident that the loans were never repaid, other than via book entries, and the principals experienced no decrease in management fees.

622 Secondly, and relatedly, Slea submits that Mr Lees, Mr Haron, and Murray Lees paid themselves inflated management fees and, at times, paid themselves both salaries and management fees. Slea accepts that it did not call any expert evidence to establish that the amounts paid to Mr Lees, Mr Haron, and Murray Lees were excessive and above market salary. Rather, it says that, on the basis of Mr Lees' evidence of remuneration increases using Mr Haron's CEO role as the only benchmark, the Court can infer that the payments received were generous, and that this should be considered in light of the non-payment of dividends. A further limb of Slea's argument is that, although Mr Lees, Mr Haron, and Murray Lees had decided, in any event, to increase what they were paying themselves, a consequence of embarking upon the related party loans scheme was that it would be necessary to pay themselves, at least nominally in the financial statements, so that the increase could be used to write off the loans.

623 I note for completeness that, in its pleading, Slea alleges that the payments to Mr Haron and Murray Lees were inappropriate, because neither Mr Haron nor Murray Lees were directors; Murray Lees was not an employee of Services; and Mr Haron was separately remunerated by Services. It did not appear to be seriously pressed during trial that Murray Lees should not have received any payments from Services, and there was no real attempt to distinguish Mr Haron's proper salary from the impugned management fees. Rather, the complaint, as formulated over the trial, appeared to be in the terms identified in the previous paragraph.

624 Thirdly, Slea submits that the retrospective recording of the accrued directors' liability into the financial accounts, which was a further consequence of making distributions via unsecured loans, had the effect of reducing the retained earnings of Services. As that, in turn, reduced what could have been paid out as dividends, such conduct was oppressive.

625 Slea correctly submits that it need only prove that the payments and accounting treatment occurred, and that they were objectively oppressive; it is not necessary to prove the reason why these acts occurred. However, Slea points to the financial pressure strategy to explain why these steps were implemented.

Connective companies' submissions on remuneration

626 The Connective companies deny that the payments to Mr Lees, Murray Lees, and Mr Haron, and the way in which those payments were recorded, constitutes oppressive conduct. First, they point to the fact that, since incorporation of the companies, the directors and managers, including Murray Lees and Mr Haron, have been paid directors' or management fees, and that Mr Tsialtas was aware of this. Contrary to Slea's pleading, the Connective companies say that Mr Haron and Murray Lees were both senior management personnel of Services in FY09 and FY10.

627 Secondly, the Connective companies maintain that the loan remuneration scheme was not commercially unfair, as it was entered into on advice, and was for the purpose of tax deferment. The Connective companies emphasise that the loans recorded in FY09 and FY10 were in lieu of personal remuneration (whether directors' or managers' fees) that would have been paid to Mr Lees, Murray Lees, and Mr Haron for their services to the Connective companies.

628 In their defence, the Connective companies deny Slea's allegations regarding the retrospective recording of the accrued directors' liability and the reduced retained earnings figures, stating that the liability owed to Mr Lees, Murray Lees, and Mr Haron was recorded in FY11 and FY12, with appropriate adjustments to the financial statements of Services. Insofar as the Connective companies' closing submissions deal with this topic, it is only to say that Mr Maloney reversed the treatment of remuneration, and to deny that the payment of remuneration was a device to reduce earnings and prevent the payment of dividends. The Connective companies point to Mr Maloney's interim dividend proposal as militating against the conclusion that the remuneration arrangement was to avoid the payment of dividends.

629 Payments to directors or associates may be oppressive when it is established that the payments are excessive, such that they are improper diversions or distributions of the company's profits to managers, to the detriment or disadvantage of non-executive shareholders.[90] Oppressive conduct can also be established where there is no bona fide attempt by directors to determine what their remuneration should be; for example, where directors adopt the attitude that they are entitled to take as much money out of the company as the business can bear.[91]

630 The resignation or retirement of a director, such that this person becomes a shareholder only, is a circumstance that the remaining directors must genuinely take into account in determining the distribution of a company's profits. It was submitted that, while it may be conventional for directors who are also equal shareholders to take a salary and benefits that exceed the value of their services to the company, this course is objectionable when one director ceases to be director, because providing remuneration above a commercially justifiable level appropriates profits to the continuing directors, which should be distributed by way of dividends.[92] In those circumstances, the contention that an existing system of remuneration has merely been maintained does not address the fundamental issue that there 'is a complete change in the circumstances which are relevant to the fairness to [the departing director] of the means taken to distribute the company's profits'.[93]

631 In Roberts v Walter Developments Pty Ltd (Roberts v Walter Developments),[94] Wheeler J considered allegations of oppressive conduct, including non-payment of dividends and the payment of remuneration. The relevant company began as a quasi-partnership, founded by the plaintiff, John Roberts, his brother Russell, and a third man. After a disagreement between the brothers, the plaintiff sought to withdraw from the company and resigned as a director. Noting that the non-payment of dividends had not been an issue prior to the plaintiff's resignation, her Honour considered:

[W]hile the company began as a quasi-partnership company, it is always competent for the parties to alter their relationship, and that in seeking to withdraw from the company and the partnership, [the plaintiff] took a step to alter that relationship: see Morgan v 45 Flers Avenue Pty Ltd (1987) 5 ACLC 222 at 235-236 ... [T]he fact of [the plaintiff] seeking to withdraw from the company has resulted in a complete change of circumstances against which the conduct of the defendants must be judged: Sanford v Sanford Courier Service Pty Ltd (1987) 5 ACLC 394 at 396; (1986) 10 ACLR 549 at 551, 559-60. The effect of the change, in broad terms, is that [the plaintiff] is no longer effectively a partner in the enterprise, but is merely, a minority shareholder. His position as minority shareholder does not entitle him to dictate to the majority, and the majority do not hold their voting power on trust for him. However, pursuant to their duties as directors, the defendants are required to give consideration to his position and to his interests and to recognise that the interests of the company are not invariably synonymous with the interests of the majority; rather, the interests of the company are to be ascertained by considering all of the relevant interests involved, including the position of [the plaintiff]. A failure to take account of [the plaintiff's] interests, at least where that failure has a result which is in any sense objectively detrimental to [the plaintiff], is necessarily unfair to him. This should not be understood as entailing the proposition that any action detrimental to [the plaintiff] will be unfair, but only that unfairness is involved in a decision reached by a method which does not bona fide take his interests into account.

...

... I prefer the view that [the plaintiff] in 1986 made a decision to remove himself from what had been the pre-existing relationship and that the defendants recognised and gave effect to that decision to the extent of excluding him from the management of the company, but that they failed to recognise that the change in relationship imposed upon them duties different from the duties of consultation and the like which had previously marked the members' relationship, substituting a duty to take account bona fide of the plaintiff's position as a minority shareholder in making decisions related to, inter alia, investments, dividends and directors' remuneration.[95]

632 Referring to her views expressed earlier, Wheeler J concluded that the decisions made by the remaining directors concerning dividends and remuneration lacked an objectively factual foundation, and that the justifications provided by the directors did not withstand close factual scrutiny.[96] Her Honour continued:

In particular, it appears to me that it would be appropriate to regard conduct as 'oppressive' or 'unfairly discriminatory against' a member or members if the conduct was taken without bona fide consideration of the interests of those members and was conduct which was objectively detrimental to them. In my view, [the remaining directors] failed to appreciate, much less to consider, the position of [the plaintiff] as a minority shareholder in the company, and this lack of consideration resulted in detriment to him.[97]

633 The particular interests of the plaintiff as a minority shareholder, which Wheeler J recognised, included that he was the shareholder with the greatest need for an income from the assets of the company; that his desire for a more immediate financial return contrasted with the defendants' desire to build up substantial capital assets; and that the question of directors' remuneration was of considerable significance to him, given its effect on the amount available to be paid as dividends.[98]

Consideration and conclusion on 3****rd and 4th instances of oppression

634 It is convenient to place in context the commencement of the system by which Mr Lees, Murray Lees, and Mr Haron were remunerated through unsecured loans. By June 2009, Mr Lees and Mr Butler had discussed changing the way that Mr Lees, Murray Lees, and Mr Haron were remunerated. They discussed the issue of a special class of shares to entities associated with the principals, such that they were paid via dividends, rather than management fees. Mr Lees touted this approach as a way for the principals to receive their fees in a tax-effective way. In practice, it was a scheme through which the 'directors' (at that stage, only Mr Lees) would be able to exercise a discretion to pay preferential dividends to these shareholders, before ordinary shareholders. The only ordinary shareholder, of course, was Slea. This occurred in circumstances where no dividends had yet been paid to Slea, despite the significant level of earnings in the Connective business.

635 There was no issue of a special class of shares. This was not because Mr Lees, Murray Lees, and Mr Haron disagreed with the plan suggested by Mr Butler, but because a special resolution was required to issue a special class of shares. The only way to pass the special resolution was with Slea's consent, or to reduce Slea's shareholding to 25%. In evidence, Mr Lees and Mr Haron agreed that, by the end of 2009, it was not viable to issue a special class of shares, so the principals turned to the loan scheme.

636 I accept that paying or remunerating the principals by way of loans had the effect of shifting a tax liability that would normally be met by them. To make loans, rather than pay remuneration, operated to increase the profits and therefore the tax liability of the company. This was objectively to the detriment of Services, and its members, and for the benefit of Mr Lees, Mr Haron, and Murray Lees. This was accepted by Mr Lees and Mr Haron during the trial. There was no evidence of any consideration by the Services' board as to whether the decision to remunerate the principals in this manner was in the best interests of the company or a fair distribution of the earnings of the Connective business as between the three principals, Mr Lees, Mr Murray Lees and Mr Haron, and the shareholders. The fact that the distribution of the earnings of the Connective business was entered into on advice does not absolve those responsible for making the decision from considering its consequences. Neither Mr Lees nor Mr Haron appeared to understand the scheme at anything other than a very superficial level.

637 Mr Lees' claim that the scheme operated only to defer tax did not find support in the evidence. Having regard to the obvious consequence of the scheme to the company, it seems to me that the decision to remunerate the principals in this manner was contrary to the interests of the members as a whole. This concern was evident to Mr Maloney when he commenced with the companies; he was dissatisfied with the advice or explanation for adopting it. Mr Lees acknowledged that the tax paid by Services as a result of the scheme was not paid back, once it was unwound; however, he asserted that, over later years, the income tax position of the company 'washed out'. No accountant was called or evidence provided to explain or support this claim.

638 In addition, I find that the loan scheme involved commercial unfairness to Slea. If a loan was made, assessable income of the company should remain the same. If a management fee was paid, the company's assessable income should decrease by the equivalent amount. Thus, assuming all other things remained equal, more tax would be paid under the loan scheme than if the same payment was made as an expense. This would disadvantage the shareholders but benefit the borrower. The payment of additional tax by Services was to the disadvantage of both Millsave and Slea, as less money was available to distribute by way of dividends. However, the burden or disadvantage imposed on Slea was greater, in circumstances where Services was refusing to pay dividends, and Slea was not in receipt of loans from the company. Mr Haron accepted that this was a concerning course of conduct to have adopted. Mr Lees persisted in his claim that the scheme did not disadvantage Slea, claiming that, even if loans had not been paid, the monies would have been advanced as management fees and so, in any event, they would have been unavailable for dividends. When it was pointed out to him that this would only be the case if the management fees equalled the loans and income tax liability, Mr Lees was unable to offer an adequate response, and continued to assert that the effect on net dividends would not be very substantial.

639 It was readily admitted that, following Mr Tsialtas's departure, Mr Lees, Murray Lees, and Mr Haron sought to increase the amount of management fees received by them. No expert evidence was called to establish that the sums received by Mr Lees, Murray Lees, and Mr Haron exceeded a commercial, market salary for a comparable role, and that particular complaint is not expressly pleaded. In my view, however, on the evidence, it is more probable than not that their remuneration was lavish, and likely unjustifiably so. The evidence that supports such a finding includes: Mr Lees, Murray Lees, and Mr Haron deciding, between themselves, what they would be paid; that this was done immediately following Mr Tsialtas's departure; the only benchmark considered was Mr Haron's rate as the sole CEO of FAST; the three paid themselves an equal amount, notwithstanding that Mr Lees and Murray Lees had previously shared management fees, and there were now three key management personnel; and the dramatic increase in salaries and management fees recorded in the financial statements for FY11 and FY12.

640 In respect of this last matter, on the state of the evidence, it is not possible to determine exactly what occurred in respect of repayment of the related party loans. Slea submits, and I consider it more probable than not, that the management fees and salaries nominally recorded in the financial statements were inflated, so as to clear the loans. The evidence supporting this conclusion includes Mr Haron's evidence that, at no point, does he recall the amount of money that he received being reduced to pay off loans, as well as the dramatic and unexplained increase in management fees and salaries paid in FY11 and FY12.[99]

641 It will be recalled that Mr Lees explained the existence of the accrued directors' liability, which was retrospectively written into the accounts, as recording the amounts owed by Services to the principals for work performed. His evidence was that the accrued liability should equal, dollar for dollar, the amount of the loans paid, and was therefore properly written off against the loans. If Mr Lees' evidence is accepted, however, then the dramatic increase in management fees and salaries is even more baffling. That is, it appears likely that, where an accrued directors' liability was recorded and written off against the loans, and management fees were substantially increased, the principals have enjoyed an unreasonable share of the earnings of the Connective companies at the expense of Slea.

642 As a consequence of the retrospective recording of the accrued directors' liability, the retained earnings for previous years were reduced. Although, in its opening, Slea appeared to contend that this was a deliberate act to reduce the earnings available for dividend distribution, in closing, it attributed this as a consequence of the scheme to distribute money via loans, so that it would not be treated as income.

643 It must be emphasised that the decisions made in respect of the level and method of remuneration took place at a time when all dividends were being withheld. The foregoing discussion leaves me in no doubt that Slea's legitimate interests as a minority shareholder in the company were not bona fide taken into account, when the level and method of Mr Lees, Murray Lees, and Mr Haron's remuneration were determined from the earnings of the Connective business. This included that, amongst the shareholders, Slea was in the greatest need of an income from the assets of the company. The evidence instead demonstrated a tendency to treat the interests of the company as synonymous with that of the majority, and to proceed in whatever manner they thought appropriate to obtain remuneration which they considered justified. The decisions made indicate an objective failure or inability to acknowledge the need to consider Slea's position as a shareholder in the Connective companies and, as such, an entity entitled to share in the earnings of the Connective companies. This failure resulted, objectively, in detriment to and the oppression of Slea.

644 As the test for commercial unfairness is objective, it is not necessary to establish an improper purpose or ulterior motive. Acknowledging this, Slea nevertheless submits that, in this case, the adoption of the financial pressure strategy explains the steps taken. I accept this submission. The aim of the financial pressure strategy was to remove Slea as a shareholder in Services and OSN at a depressed price. Mr Lees, Murray Lees, and Mr Haron sought a way to generously remunerate themselves from the earnings of the Connective companies, whilst at the same time avoiding paying dividends, thus depressing the value of Slea's shares, and advancing their plan to acquire Slea's shares at a depressed value.

645 I am satisfied that, objectively, there has been conduct that is oppressive to Slea. The presence of the financial pressure strategy makes such a finding irresistible.

5****th instance of oppression (failure to finalise a shareholders' agreement)

646 The fifth pleaded oppressive act is a failure to enter into a shareholders' agreement with Slea. For the following reasons, I find this claim has not been made out.

647 Slea alleges that, in December 2006, at the request of Mr Lees, Mr Kirton prepared and provided him with a draft shareholders' agreement between Millsave and Slea. Slea alleges that, in the period January to June 2007, further drafts were provided. Slea pleads terms of the proposed agreement.

648 Slea alleges that, by at least July 2009, Millsave and Mr Haron had decided not to provide any further drafts of the shareholders' agreement and this constituted oppressive conduct.

649 From December 2006, as part of the process directed at bringing Mr Haron into the Connective companies as a shareholder and working out how that could be done, drafts of a shareholders' agreement were circulated between Mr Lees, Murray Lees, and Mr Tsialtas. The initial draft contemplated that the agreement would be between Slea and Millsave; a later revised draft included an entity associated with Mr Haron as a party. This later version does not appear to have been provided to Mr Tsialtas.

650 Drafts of the shareholders' agreement contained terms offering minority shareholder protections, including: making the appointment and removal of directors subject to a special vote (66.67%); the incorporation of any subsidiary, the sale of the business, or a change to the dividend policy, subject to a majority vote (85%); and the issue of shares subject to a unanimous shareholder vote.

651 Slea initially alleged that, when the final draft was provided to Mr Lees by Macpherson Kelley in June 2007, there was no dispute between the parties as to its terms. In oral closings, Slea accepted that this proposition was not made good on the evidence. Rather, Slea relies on an allegation that, by July 2009, Millsave and Mr Haron had decided not to provide any further drafts or otherwise finalise the shareholders' agreement, on the basis that to do so would be contrary to the decision made around the same time to remove Slea as a shareholder. Slea says that this decision can be inferred from the fact that further drafts of the share sale agreement, but not of the shareholders' agreement, were provided to Slea, notwithstanding that the documents had been drafted together as a suite of agreements. In addition, no further drafts were provided to Slea, despite Mr Tsialtas asking Mr Lees and Mr Butler for them in late 2009.

652 Relevant to Mr Lees' credit, Slea queried his evidence regarding correspondence sent to him which he purported to have forwarded to Mr Tsialtas in December 2009. The correspondence included a draft shareholders' agreement, a deed of confirmation, and a letter to the client dated 15 May 2007. Mr Lees agreed, however, that he omitted to send one of the documents received, being tax advice on division 7A. Slea submits that Mr Lees thus admitted to controlling the flow of information to Mr Tsialtas and accepted that he had deliberately left out the division 7A information.

653 The division 7A information concerned the issue of shares to Mr Haron, rather than the sale of shares to Mr Haron. Slea submits that an issue of Connective shares to Mr Haron at no cost, rather than Mr Haron buying shares from Slea, would have been financially disadvantageous to Mr Haron, with the issue treated as a dividend under division 7A, but financially advantageous to Slea. In contrast, a sale of shares by Slea to Mr Haron, which Mr Lees was pressing, would have been financially disadvantageous to Slea, as it would not receive payment for the shares until the business was sold.

654 Each of the Connective companies, Millsave, and Mr Haron pleaded to this allegation. It is not entirely clear to me why the Connective companies have pleaded to an allegation directed to Millsave and Mr Haron. Their pleadings deny, for example, that it was Mr Lees who instructed the solicitors to prepare the draft shareholders' agreement, stating instead that it was the Connective companies who did so, following the making of the alleged Haron agreement. There appears to me to be an element of artifice in this approach. For example, it is pleaded that Slea's proposed further terms in April 2007 were unacceptable to Services and OSN. This is strange, considering that the relevant agreement was a shareholders' agreement, with the companies proposed to be parties 'for them to acknowledge its terms and to bind them to any obligations'. According to Mr Lees, finalisation of the agreement was not prevented because of any objection by Services and OSN to the terms of the agreement; rather, and ostensibly on behalf of Millsave, Mr Lees did not agree with the voting rights proposed by Slea.

655 In any event, the matters pleaded in response by each of the defendants are numerous. In essence, reference is made first to the alleged Haron agreement, and then to Slea's dealings and agreements with Liberty. The substantial allegation is that, despite Slea being provided with further drafts of the shareholders' agreement, Slea did not execute the shareholders' agreement (or the share sale agreement), because it was acting at the direction of Liberty, who decided not to execute those documents. By reason of the agreements with Liberty, the defendants allege that Slea was not ready, willing, or able to complete the shareholders' agreement.

656 Before turning to the disposition of this issue, two matters should be noted in respect of the pleaded allegations. First, despite an allegation by the defendants to the contrary, the evidence establishes that no further drafts of the shareholders' agreement, as distinct from the share sale agreement, were provided to Slea after 19 March 2007. Second, the substantial defence pleaded by the defendants, that Slea was not ready, willing, or able to complete the shareholders' agreement because of its involvement with Liberty, was never put to Mr Tsialtas in cross-examination.

Consideration and conclusion on 5****th instance of oppression

657 Before considering whether this is conduct that is relevantly oppressive, unfairly prejudicial to, or unfairly discriminatory against Slea, a preliminary question arises. That question is whether the impugned conduct falls within the affairs of the company as required by s 232 of the Act. Section 53 of the Act provides for a wide definition of a company's affairs; however, the authorities demonstrate that there are matters which may pertain to shareholders or directors privately, as opposed to the company's affairs.[100]

658 Of these, the most relevant for present purposes is Re Leeds United Holdings plc (Re Leeds United).[101] In this case, Rattee J considered whether an asserted legitimate expectation that a shareholder would not sell his shares without the consent of the other shareholders - which had been the subject of a negotiated but not concluded shareholders' agreement - related to the conduct of the company's affairs. Rattee J struck out the oppression proceeding, having concluded that it was misconceived, as the expectation did not relate in any way to the conduct of the company's affairs.[102]

659 Although there are appreciable differences between the facts of that case and the one before me, the important point made by that case is that a dispute between shareholders does not necessarily fall within the phrase 'affairs of the company', even though the subject matter of the dispute relates to a shareholding in the company, or rights inter se in respect of that shareholding.

660 I am not satisfied that a dispute about entry into a shareholders' agreement is relevantly conduct within 'the affairs of the company'. It is true that the proposed shareholders' agreement dealt with matters that would, if adopted, regulate the conduct of the company's affairs. Breach of those terms, once adopted, may entitle the shareholder to complain of unfairness. However, the decision whether to enter into the shareholders' agreement is, in my opinion, one that does not fall within the conduct of the affairs of the company as distinct from conduct by one shareholder towards another. Put differently, it is not a case of the majority shareholder or shareholders using their position to conduct the affairs of the company in a certain way; it is shareholders deciding whether it is in their own respective interests to alter the basis on which they have, to date, agreed to interact as shareholders.

661 In case I am wrong in that conclusion, I am nevertheless not convinced that the failure of the shareholders' agreement to be finalised is relevantly oppressive. I accept Slea's contention that entry into a shareholders' agreement as drafted would have alleviated, in part, the financial pressure strategy adopted by Mr Lees, Murray Lees, and Mr Haron, and that, relatedly, a decision not to provide further drafts or otherwise finalise the shareholders' agreement was consistent with that strategy. I also accept that entry into the shareholders' agreement would have been beneficial for Slea, providing it with additional protection. However, where the evidence discloses that the parties were not agreed on terms, and there was nothing to suggest that an agreement on terms could or would be reached, I do not consider the failure to enter into a shareholders' agreement to be oppressive, unfairly prejudicial to, or unfairly discriminatory against Slea.

662 I consider that the failure to provide further drafts of the shareholders' agreement was, in part, a consequence of the failure to reach agreement on the terms upon which Mr Haron would acquire shares in the Connective companies, and thus could not be characterised as oppressive conduct by Millsave and Mr Haron.

663 I find that Slea has failed to establish that the failure to enter into the shareholders' agreement was oppressive conduct, although the conduct of Mr Lees in pressing the share sale agreement to the exclusion of the shareholders' agreement is conduct that is relevant to the overall story.

6****th instance of oppression (conduct designed to remove Slea as a shareholder)

664 The final finding of oppressive conduct comprising 'phase one' is Slea's allegation that, by at least July 2009, Mr Lees, Murray Lees, and Mr Haron had decided that they would seek to remove Slea as a shareholder in Services and OSN, at a depressed price. The decision is particularised by reference to a number of emails, which are set out above in the chronology of events outlined in Part 1, namely:

(a) The version 1 email and the version 2 email, sent by Mr Butler on 22 July 2009 at 6:23pm and 8:17pm to Mr Lees, Murray Lees, and Mr Haron, which set out two versions of a proposal to be put to Mr Tsialtas for the purpose of acquiring Slea's shares;

(b) The Haron version 2 assent, sent by Mr Haron on 23 July 2009 at 9:50am to Mr Butler, Mr Lees, and Murray Lees in response to Mr Butler's emails, the subject being version 2;

(c) The email sent by Mr Butler on 23 July 2009 at 4:09pm to Mr Haron, Mr Lees and Murray Lees in response to Mr Haron;

(d) The Murray Lees version 2 assent sent by Murray Lees on 23 July 2009 at 9:01pm to Mr Butler, Mr Haron, and Mr Lees in response to Mr Butler; and

(e) The Murray Lees 'text from Sof' email, sent by Murray Lees on 28 June 2010 at 1:00pm to Mr Butler, discussing Mr Tsialtas's text message about his financial difficulties.

665 The actions said to have been taken by Mr Lees, Murray Lees, and Mr Haron to effect that decision were failing to pay dividends, failing to finalise the shareholders' agreement, and purporting to restructure the business. Findings related to the dividend and shareholders' agreement issues have been set out above, and the purported restructure will be dealt with below. It is sufficient, at this stage, in respect of the purported restructure, to record that I find it constituted oppressive conduct, and was undertaken to circumvent Slea's pre-emptive rights to enable Slea's commercial interest in the Connective business to be reduced from 331⁄3% to 25%.

666 Slea does not allege, as an oppressive act in itself, that Mr Lees, Murray Lees, and Mr Haron obstructed the sale by Slea of its shares to a third party. Rather, Slea seeks a factual finding that the sale of shares was obstructed to support the conclusion that Mr Lees, Murray Lees, and Mr Haron had a strategy of seeking to acquire Slea's shares for themselves at a depressed price.

667 The chronology of events surrounding Slea's attempted sale of its shares is set out above. I have already expressed my finding that Mr Lees did not intend to let Slea sell its shares to a third party, and that he did so in the belief and hope of possibly being able to purchase Slea's shares at a price below their true value. I make the factual finding sought that Mr Lees, Murray Lees, and Mr Haron obstructed Slea in selling its shares to a third party. As discussed above, I am satisfied that Mr Lees, Mr Haron, and Murray Lees agreed with and supported the implementation of version 2 of the financial strategy to induce Slea to sell its shares in Services and OSN to Mr Lees, Murray Lees, and Mr Haron at an under value.

668 Outside of the three phases of oppression are two allegations of continuing oppression: the funding of and participation in litigation by Services and OSN (and other Connective subsidiaries) in proceedings that comprise disputes between Slea, Millsave, and Mr Haron (11th instance); and the withholding of financial records from Slea (12th instance). The 7th instance is the restructure, the 8th is the sale to Macquarie, the 9th is the constitution of Group, and the 10th is the misleading or deceptive conduct claim, all of which are discussed below.

11****th instance of oppression (funding of and participation in litigation)

669 As discussed earlier, the Connective companies, Millsave, and Mr Haron were each separately represented in the oppression proceeding, even though I find it is more probable than not, that Mr Lees was giving instructions on behalf of the Connective companies and Millsave. In the derivative proceeding, Mr Lees (together with Mr Haron and Mr Maloney) was represented by yet another set of solicitors and counsel. No complaint has been made by Slea about this aspect of the cases.

670 Evidence led at trial shows that, as at October 2019, the Connective companies had spent in excess of $12.5 million on legal fees in various proceedings connected to the dispute with Slea. This does not include the doubtless considerable legal fees that will have been incurred for the trial of the oppression and derivative proceedings.

671 In documents produced by the Connective companies pursuant to a call by Slea's counsel, the terms 'Slea litigation' and 'shareholder dispute' relevantly capture the oppression proceeding, the derivative proceeding, the approval proceeding, and Connective's pre-emptive rights proceeding, the respective costs of which are recorded as:

(a) oppression proceeding: $10,556,791;

(b) derivative proceeding: $215,213;

(c) approval proceeding: $405,758;

(d) pre-emptive rights proceeding: $1,115,188.[103]

672 The amount spent on the oppression proceeding includes over $1 million which the Connective companies are paying to legal representatives of the directors to indemnify them.

673 A very significant proportion of the Connective companies' net profit for recent years has been spent on these legal costs. For FY15, the proportion of net profit after tax spent on Slea-related litigation was 29%. In FY16, this increased to 70%, before reaching its recorded peak in FY17 at 95% of net profit after tax. Sixty-one per cent of net profit after tax in FY18 was spent on Slea litigation. For the half year to 30 June 2019, 79% of net profit was spent on litigation.

674 As Slea is a one-third shareholder in the Connective companies, it is effectively bearing a significant proportion of the costs incurred by Services and OSN in the various proceedings. Slea alleges that, in circumstances where the relevant dispute is ultimately one between Slea, Millsave, and Mr Haron, it submits that the bringing and funding of Connective's pre-emptive rights proceeding, and the funding of and participation in the oppression and derivative proceedings by Services and OSN, is oppressive and entails the expenditure of company funds to advance the interests of Millsave and Mr Haron.[104]

675 Before turning to Slea's pleaded claims in respect of the costs incurred in the pre-emptive rights proceeding, it is necessary to say something more about the proceeding.

676 Connective's pre-emptive rights proceeding was commenced by Services and OSN in 2016 against Slea. In the proceeding, Services and OSN contended that Slea had breached, or intended to breach, the pre-emptive rights provisions by reason of Minerva's 2009 agreement with Mr Tsialtas and the accommodation agreement between Liberty and Slea. The primary relief sought was an order compelling Slea to offer its shares in Services and OSN to Millsave and Mr Haron. Slea sought an injunction restraining the Connective companies from prosecuting the proceeding, inter alia, on the basis that Services and OSN were providing financial assistance to the other shareholders in breach of s 260A of the Act. This section provides that a company can only financially assist a person to acquire shares in it, if doing so does not materially prejudice the interests of the company or its shareholders.

677 At first instance, Almond J concluded that the Connective companies had not contravened s 260A and that they did not lack standing to enforce the pre-emptive rights provisions in their constitutions. However, his Honour stayed the proceeding as an abuse of process, based on the Connective companies' breach of an implied undertaking not to use discovered documents for a purpose outside the proceeding in which they were originally discovered.[105]

678 Slea appealed Almond J's decision that s 260A of the Act was not contravened. The Court of Appeal, comprising Ferguson CJ, Whelan and McLeish JJA, concluded that the commencement of the proceeding was properly characterised as constituting the provision of financial assistance to acquire shares, which was in breach of s 260A.[106] Their Honours considered that, even assuming the pre-emptive rights provisions had been triggered, and Millsave and Mr Haron had an entitlement to receive an offer from Slea, on the Connective companies' case, Slea would not make the offer absent a court order. It followed that action had to be taken to compel Slea to make the offer:

The proceeding seeks to procure that outcome. This 'assists' Millsave and Mr Haron to both obtain the offer (which is an 'option') and to acquire the shares (if they decide to do so). The 'assistance' is properly characterised as 'financial assistance' because the assistance given to Millsave and Mr Haron comes at a financial cost. The Connective companies have incurred, and will continue to incur, legal costs in instituting and pursuing the proceeding. They have also undertaken a potential cost liability. There is no evidence that Millsave and Mr Haron have incurred any costs or taken on any potential cost liability. On the material before us, there is in the relevant sense a net transfer of value from the company, which is bearing the cost, to the shareholders other than Slea, who will receive the benefit.[107]

679 Services and OSN appealed to the High Court, which dismissed the appeal and affirmed the decision of the Court of Appeal. The Court stated:

Bringing legal proceedings against Slea was a necessary step for the vindication of any pre-emptive rights of Millsave and Mr Haron. Those legal proceedings could have been commenced by Millsave and Mr Haron. If they had been so commenced, then it would plainly have been financial assistance for the Connective companies to provide the funds for Millsave and Mr Haron's proceedings ... Instead, the proceedings were commenced at the expense of the Connective companies, in which Millsave and Mr Haron hold 66.67% of the shares. The Connective companies eased a financial burden in the process of any acquisition of shares by Millsave and Mr Haron ...

...

The Connective companies will incur costs in conducting the pre-emptive rights proceeding which, even if they succeed, will not be entirely recovered. Before the primary judge, Slea led evidence that the estimated cost of the pre-emptive rights proceeding was $525,000 to $755,000 in addition to any potential adverse costs orders. As a shareholder, Slea's equity may be reduced by these costs of the pre-emptive rights proceeding, which is a step towards compelling Slea to offer its shares for transfer to Millsave and Mr Haron. The pre-emptive rights proceeding could, and commonly would, have been brought by Millsave and Mr Haron in their own right. Yet the Connective companies led no evidence to explain whether they had even sought funding or indemnity from costs liability from Millsave and Mr Haron.[108]

680 As noted above, the evidence before me is that the Connective companies have in fact incurred over $1 million in costs in bringing the pre-emptive rights proceeding.

681 Slea pleads that it was oppressive for Services and OSN to bring the pre-emptive rights proceeding and that it was commenced for the improper purpose of removing Slea as a shareholder. The improper purpose is to be inferred from various pleaded matters, including that pre-emptive rights provisions confer benefits on shareholders rather than companies; that the relief sought is for Millsave and Mr Haron; and that Millsave and Mr Haron elected not to bring the pre-emptive rights proceeding at their own cost. Slea seeks an order that Millsave and Mr Haron repay all legal costs and expenses incurred by the Connective companies in connection with the pre-emptive rights proceeding and related appeals.

682 Counsel for the Connective companies did not address the pre-emptive rights proceeding in oral closing. In pleadings and written closing submissions, reliance is placed on four key matters to refute the allegation that Connective's pre-emptive rights proceeding was oppressive and commenced for an improper purpose.

683 First, the proceeding was commenced in order to ensure compliance with the companies' constitutions.

684 Secondly, Services and OSN have standing to bring proceedings to enforce the terms of their constitutions, including pre-emptive rights provisions, as affirmed by the High Court.

685 Thirdly, the pre-emptive rights proceeding conferred no benefit on Millsave and Mr Haron as against Slea. The Connective companies emphasise that the High Court decision in that proceeding concerned only the application of s 260A of the Act, and not whether the pre-emptive rights proceeding was commenced for some ulterior purpose or was oppressive.

686 Fourthly, the Connective companies say that, in the context of Liberty's involvement with Slea, initiating the pre-emptive rights proceeding was not oppressive. The Connective companies assert that the oppression proceeding was, in truth, a vehicle for Liberty to advance its commercial interests in its relationship with the Connective companies. They say that Liberty has attempted, since 2009, to interfere in the affairs of the Connective companies through various agreements with Slea, which have sought to avoid the operation of the pre-emptive rights provisions in Services' and OSN's constitutions.

687 Slea's claim particularises seven matters from which it is said that the improper purpose of removing Slea as a shareholder can be inferred. Slea submits that those matters have been incontrovertibly established.

688 Four of the seven are not contentious. These are that: the pre-emptive rights provisions confer rights and benefits on the shareholders of Services and OSN, not on the companies; the primary relief sought by Services and OSN is an order that Slea offer its shares to Millsave and Mr Haron; the directors of Services and OSN are Mr Maloney, Mr Haron, and Mr Lees; and that Mr Lees is a director and shareholder of Millsave.

689 The third particular is that, accordingly, the relief sought by Services and OSN is for the benefit of Millsave and Slea, as against Slea. This is denied by the Connective companies in their defence but, objectively, as noted by both the Court of Appeal and the High Court, the proceeding provided a benefit to Millsave and Mr Haron, and the companies failed to establish that there was no material prejudice to Slea. Mr Haron conceded in cross-examination that the relief sought was for the benefit of himself and Millsave, against the interests of Slea.

690 The sixth particular is that Millsave and Mr Haron elected not to bring the proceeding themselves - that is, expending their own personal funds. This too was established on the evidence. Mr Maloney's evidence was that he had asked Mr Lees and Mr Haron if they were prepared to bring the litigation, which was for their benefit, but they said they were not willing. They supported the companies funding the litigation.

691 The final particular is that Services and OSN are expending company funds in prosecuting the proceeding for the benefit of Millsave and Mr Haron. The expenditure of company funds is admitted.

692 Slea says the suggestion that the proceeding was commenced in order to ensure compliance with the constitutions obscures the true purpose of the proceeding; but, in any event, oppression is an objective test and, objectively, the proceedings sought an order that Slea sell its shares to Millsave and Mr Haron. It is also an objective fact, as held by the Court of Appeal and the High Court, that the companies were providing financial assistance, or a financial benefit, to Millsave and Mr Haron at Slea's expense.

693 According to Slea, the remaining defences amount to an assertion that, because Services and OSN had standing to bring the pre-emptive rights proceeding, there could be no oppression. In response to this contention, Slea submits that legal capacity or power to do something is not an answer to oppression; conduct within power can be oppressive. While the companies have standing to enforce the pre-emptive rights in their constitutions, pursuant to s 140(1) of Act, that section 'cannot be read divorced from other provisions of the [Act] with which it may intersect'. The High Court made this point in respect of s 260A of the Act; Slea submits that it applies equally to s 233 of the Act.

694 To the extent that Liberty's objective of obtaining Slea's shares in the Connective companies is pressed as a defence to the expenditure of company funds, Slea says it is a complete answer that the directors are not entitled at the expense of the company to take part in a dispute about who will control the company.[109]

695 Slea submits that it is difficult to envisage a clearer case of oppression than for company funds to have been spent to commence a proceeding against Slea in pursuit of an order for the financial benefit of the majority shareholders.

Consideration and conclusion: pre-emptive rights proceeding

696 The Connective companies' defence to Slea's second further amended statement of claim was filed on 1 May 2019. This was subsequent to the publishing of the Court of Appeal's judgment, but prior to the hearing of the matter in the High Court. The Connective companies appear to maintain their pleaded position that the pre-emptive rights proceeding conferred no benefit on Millsave and Mr Haron as against Slea, notwithstanding the findings that there was such a benefit by the Court of Appeal[110] and the High Court.[111] In my view, that position is clearly untenable.

697 I accept that the seven matters particularised by Slea are made out, and that company funds have been spent to commence a proceeding against Slea seeking an order for the financial benefit of the majority of the shareholders, in circumstances where the majority shareholders declined to bring such an action themselves. I find, for the reasons submitted by Slea, that the companies' position is taken no further by the fact that they had standing to bring the proceeding. I am satisfied that reasonable directors, when weighing the furthering of the alleged corporate object (that is, enforcing the provisions of the constitution) against the disadvantage, disability, or burden imposed on Slea, would have decided that the decision to commence proceedings at the companies' expense was unfair and that, accordingly, the conduct of Services and OSN in bringing the proceeding was oppressive.

698 Although not pleaded, the Connective companies submit that, when considered in the context of Slea's involvement with Liberty, as established at trial, and Liberty's alleged objective, commencement of the pre-emptive rights proceeding was not oppressive.

699 It is not clear to me what the Connective companies are referring to with their reference to the context of Slea's involvement with Liberty, or its relevance to misuse of the companies' funds to finance litigation over shareholdings between shareholders. If they are persisting with the accusation that Slea was merely a puppet of Liberty, I reject the submission. In his final address, Mr Collinson for Millsave said that the description served no purpose. I would characterise the relationship between Slea and Liberty as a business relationship, in which both parties entered into arrangements with each other for their own benefit, and not one where Slea agreed to act as the puppet of Liberty.

700 As Slea submitted, however, the question of who controls the company is not a question properly within the purview of the directors.[112] In Whitehouse v Carlton Hotel Proprietary Limited (Whitehouse v Carlton),[113] Mason, Deane and Dawson JJ spoke of the

distinction between the indirect proprietorship and ultimate control of the shareholders on the one hand and the powers of management entrusted to the directors on the other**.** It is simply no part of the function of the directors as such to favour one shareholder or group of shareholders by exercising a fiduciary power ...[114]

701 By extension, it is not for the board of directors to expend company funds in a dispute relating to who controls the company. In Re Kenyon Swansea Ltd (Re Kenyon),[115] Vinelott J stated:

The directors concerned no doubt have very strong feelings as to the person they would like to see in control of the company and able to appoint and remove its directors including themselves. But they are not entitled at the expense of the company to take part in a dispute as to whether [one shareholder's] shares should be compulsorily acquired by [another shareholder] or by the company.[116]

702 To this conclusion I would add the following. In line with the statements of principle set out above, the Court starts from a position of initial scepticism when it comes to the use of company funds in relation to oppression proceedings. I appreciate that Connective's pre-emptive rights proceeding is technically separate to the oppression proceeding. However, in my view, it is clear that the Connective parties and their advisers saw each proceeding as falling relevantly under the portmanteau of 'Slea Litigation'. This is apparent from the documents produced under call; the litigation strategy devised by the Connective companies' solicitors, which informs decisions taken in all legal proceedings between Slea and companies within the Connective group of companies; and from the evidence of Mr Maloney, which is set out below.

703 On this basis, I consider it appropriate to be guided by the view that Services and OSN should satisfy the Court with evidence that the decision to commence Connective's pre-emptive rights proceeding was made looking to what was necessary or expedient, in the interests of the companies as a whole.[117]

704 The evidence given by Mr Maloney and Mr Haron is set out below. Mr Lees did not give relevant evidence on this topic.

705 Mr Maloney revealed that it was Quinn Emanuel who suggested bringing the action against Slea, as the limitation period for such an action was running out. When Mr Lees and Mr Haron said that they were not prepared to bring the litigation, Quinn Emanuel suggested that the companies fund the litigation; a suggestion that found support with Mr Lees and Mr Haron.

706 It was put to Mr Maloney that the purpose of the pre-emptive rights proceeding was to remove Slea as a shareholder:

COUNSEL: Mr Maloney, this litigation would only make sense if Haron and Lees wanted to acquire Slea's shareholding; do you agree?--- Well I think it makes sense for a company to defend its constitution if it feels it's been breached. So I think it makes sense from that standalone point of view particularly when, in my view, the breaching of their constitution has led to effective control of those shares being passed to a third-party who is now acting hostily [sic] against a company.

COUNSEL: Mr Maloney, this makes no sense and I will put to you why that is: you understand that the litigation alleged that Slea had somehow breached the pre-emptive rights by, in fact, transferring its shares to Liberty even though it hadn't registered any transfer of its shares?---Well, the effect of the accommodation agreement was to get control - economic control anyway over to Liberty, yes.

COUNSEL: Of Slea's shares?---Yes.

COUNSEL: And you understood that the litigation sought relief in the form that Slea would offer its shares to Millsave and Haron?---That's correct, yes.

COUNSEL: And you understood if they didn't want to take up those shares, then, Slea was free to sell its shares to whoever it wanted?---Ah, yes. Yes.

COUNSEL: So it can only have made sense to commence this litigation if Millsave and Haron wanted to buy Slea's shares; do you agree?---Well, they - yes, I guess I agree with that. Yes.

COUNSEL: So you wouldn't have commenced this litigation unless Millsave and Haron told you that they wanted to buy Slea's shares?---Um, I don't - I'm not sure that they actually made that - in fact, I'm sure they didn't make that statement to me. We were - we were trying to defend their - my - my - my thought, in taking the advice I had been given that the company was in that position to do this, was to try to resolve an issue where we have a hostile party trying to dictate how to run this company and not to the benefit of the majority of shareholders or the company. Had this procedure been successful, then that goal would have been, um - would have been successful. And that was my goal, in my thought, in why I supported running this action.

COUNSEL: So that we understand what you say your goal was, your goal was to remove the oppression litigation that was on foot at the time; is that right?---It was to remove the influence that a third-party non-shareholder was having on the company to the detriment of the company.

...

COUNSEL: And apart then from that conduct of running the oppression proceeding and seeking the unwinding of the Macquarie transaction and the restructure, is there any other conduct of Liberty or Slea that you want to identify as at 2016 by which they were apparently seeking to exert control over Connective?---No, not that I can think of at the moment here. No.

707 Mr Maloney then gave evidence that he was of the view that Connective's pre-emptive rights proceeding, if successful, would have stopped the oppression proceeding because Slea ceased to have been a shareholder. He assumed that Mr Lees and Mr Haron were willing to buy Slea's shares, because they supported commencing the proceeding.

708 Mr Maloney was then taken through the various decisions in Connective's pre-emptive rights proceeding, and confirmed that he understood the issue identified by the Court of Appeal to be that the companies were funding litigation for the benefit of Millsave and Mr Haron. The following exchange took place:

COUNSEL: [H]ow did you form the view that it was for the benefit of the company to be funding litigation for the benefit of one shareholder against another shareholder?---Well, I viewed it as the benefit of the majority of shareholders against a, ah, individual shareholder - a minority shareholder, rather than - anyway, the - the - rather than, as you're putting, one shareholder against another.

COUNSEL: Do you mean, you understood it was for the benefit of the majority of the shareholders?---That's correct, because, if you go back to the original reason I supported this, it was to try to resolve the difficulties we were having running the company in a proper manner in - in - sorry, not in a proper manner; in a - in a manner that benefited all shareholders - who weren't hostile to us - all shareholders in the company. And the result - the - the resolution of this particular case would have, in my view, resolved all the difficulties that are facing the proper growth and prospects of the company.

COUNSEL: Because you didn't regard Millsave and Haron as hostile to Connective?---Millsave and Haron being [Mr] Lees - [Mr] Lees and - and [Mr] Haron? Ah, hardly hostile. They were - they've built the company. They are the two responsible for its success. So obviously they're not hostile to it.

...

COUNSEL: And now then, even with the benefit of hindsight, do you regard running this proceeding as appropriate or inappropriate?--- I regard it as completely appropriate. I am completely bewildered that a company can't protect its constitution. I'm not arguing that the law is right or wrong, I'm just saying I'm completely bewildered that a provision of our constitution was grossly - grossly breached, in my view, for all the wrong reasons, and we can't defend it, so I am perplexed is my state of mind at the moment.

COUNSEL: I see. And even now, you don't recognise a problem with running a proceeding seeking a remedy for the majority of shareholders against the minority shareholder?---In the circumstances that we have at Connective, no.

709 Mr Maloney confirmed that, notwithstanding that one of Slea's complaints in the oppression proceeding was the expenditure of company funds, he had not enquired as to the cost of the pre-emptive rights proceeding.

710 This evidence of Mr Maloney, the independent director, is instructive. It demonstrates an apparent inability or unwillingness to separate the interests of the majority from the interests of the companies, and to acknowledge that one was not necessarily synonymous with the other.

711 On the subject of Connective's pre-emptive rights proceeding, Mr Haron agreed that he, Mr Lees, and Mr Maloney, caused Services and OSN to spend money to procure an order that was for the benefit of Mr Haron and Millsave. If the pre-emptive rights were 'proved', and Slea had to offer its shares to the shareholders of Services and OSN then, according to Mr Haron, this would be a 'strategic benefit'. He was content for company funds to be spent to achieve that purpose. When it was put to him that this was not an appropriate way for company funds to be spent, Mr Haron responded: 'I don't understand the matter enough and I wasn't, um, involved in the day to day discussions with Quinn Emanuel in respect to it ... but the way you have put it to me, I would accept that.'

712 Mr Haron confirmed that, notwithstanding the High Court decision, the directors had not put in place steps to reimburse the companies for funds expended on the pre-emptive rights proceeding. Mr Haron, as a shareholder for whose benefit the proceeding was being run, had not put in place any such steps and was unaware if Millsave had done so. Mr Haron accepted that it was unfair to Slea, apart from also being a breach of the Act, to spend company money for Mr Haron and Millsave's advantage, and contrary to Slea's interest.

713 In light of this evidence, and the matters established above, I am not satisfied that Connective's pre-emptive rights proceeding was commenced in the interests of the companies as a whole, and for a proper purpose. In coming to this conclusion, I have had regard to the principles governing directors exercising their powers for improper purposes, discussed in part 3, when dealing with the restructure and sale.

714 I conclude that Millsave and Mr Haron should repay all legal and other expenses incurred by Services and OSN, or other Connective subsidiaries, in connection with Connective's pre-emptive rights proceeding and the appeals thereto, including the High Court appeal.

715 Slea pleads that the active participation and expenditure in the oppression and derivative proceedings by Services and OSN, or Services, OSN, and the Connective subsidiaries, is oppressive. At all relevant times, Millsave and Mr Haron have been in effective control of Services and OSN, and the impugned conduct was engaged in by Services and OSN under the control of Millsave and Mr Haron, in furtherance of their own interests to Slea's detriment. The proceedings are, in truth, shareholder disputes. Slea seeks an order that Millsave and Mr Haron repay the expenses incurred by the Connective companies in connection with those proceedings, or such part of those expenses that are not reasonably and necessarily incurred for the protection of the interests of the Connective companies.

716 The starting point in considering the appropriateness of a company defending an oppression proceeding is the much cited passage in Re DG Brims and Sons Pty Ltd (Re D G Brims),[118] where Byrne J stated:

Many thousands of dollars of company funds have been spent on lawyers, accountants and valuers in defending these proceedings on behalf of the majority shareholders. This is unfair and infringes the basal principle that 'the powers, and the funds, of a company may be used only for the purposes of the company'.[119] No doubt a small part of the expenditure was justifiable; for example, in discovery, and in resisting such orders as that the company purchase the shares or pay a dividend for 1991. Expenditure to protect its discrete interests or for other proper purposes of the company may be made from company resources. The essential dispute here, however, is between the shareholders; and company funds should not have been used to defend the majority shareholders.[120]

717 This statement of principle has been widely approved and adopted.[121] In Re Optimisation Australia Pty Ltd (Re Optimisation),[122] Brereton J stated:

While it is not necessarily improper or inappropriate for a company to defend an oppression suit at its own expense, it may be oppressive for a company to do so if its defence goes beyond merely protecting the discrete interests of the company, so as to amount to support of the majority, with the consequence that the majority get at least some of their legal work done at the expense of the company, and resources of the company are expended on the support of the majority.[123]

718 The preponderance of Australian authority[124] accords with Lindsay J's statement of principles in Re a Company (No 001126 of 1992) (Re a Company (No 001126 of 1992)):[125]

[T]here is no rule that necessarily and in all cases ... active participation and such expenditure is improper.

... the test of whether such participation and expenditure is proper is whether it is necessary or expedient in the interests of the company as a whole ...

... in considering that test the court's starting point is a sort of rebuttable distaste for such participation and expenditure, initial scepticism as to its necessity or expediency. The chorus of disapproval in the cases puts a heavy onus on a company which has actively participated or has so incurred costs to satisfy the court with evidence of the necessity or expedience in the particular case. What will be necessary to discharge that onus will obviously vary greatly from case to case.[126]

719 In that case, relevant to determining whether the onus had been discharged was the fact that the company's board, which had taken the position that the company should participate in the oppression proceeding, was comprised solely of persons appointed by the majority shareholders:

[G]iven the close relationship between the board and the respondent consortium members, it is not enough merely to assert that it is the board's view, having taking the advice of leading counsel, that it should participate in the petition. If the onus is to be discharged the court will need to be satisfied not merely that the board's decision to participate could have been, but that it was, arrived at by an honest and reasonable board properly looking to what was necessary and expedient in the interests of the company as a whole ... [I]n a case such as this where intervention by the company could so easily be motivated either by a wish to advance the consortium respondents or to hinder or increase the burden on the petitioner, what is relevant is not argument, however attractive, as to what the board could properly have had regard in coming to its conclusion but rather what the board did have regard to in coming to its conclusion. As to that, in my judgment, the facts so far proved fall short.[127]

720 Each case will turn on its own facts, in terms of which expenses were necessarily incurred for the protection of the discrete interests of the company, although the authorities have found in particular instances that discrete interests include disclosure,[128] resisting a compulsory purchase order sought against the company,[129] the validity of the company's decision-making in certain circumstances,[130] the proper construction of the company's constitution,[131] and relief.[132]

721 The commencement of a proceeding by a company against a shareholder may be unfair where it is established that it was for some ulterior purpose, or to seek some collateral or other inappropriate advantage.[133] The principle that a company's money should not be expended on disputes between shareholders may apply to a proceeding commenced by a company against a shareholder, pursuant to a duly passed resolution, where the directors who passed the resolution were 'motivated not by the company's interests but by a desire to further the interests of shareholders' - that is, where the corporate action was in truth a shareholders' dispute.[134]

722 The Connective companies say that the oppression proceeding is not and was not solely a dispute between shareholders, but involved claims against the Connective companies. The oppression proceeding was commenced solely against Services and OSN, and the claims made against the companies remained live issues following amendment to the statement of claim in the oppression proceeding, which added claims against the shareholders. Accordingly, the Connective companies submit that their participation and defence in respect of those matters was clearly legitimate. Further, there was significant expenditure by the Connective companies on meeting their disclosure requirements, and they submit that there is no occasion for those monies to be reimbursed.

723 Otherwise, the Connective companies submit, on the authority of decisions such as Power v Ekstein (Power v Ekstein)[135] and Trojan Equity Ltd v CMI Ltd (Trojan Equity),[136] that it is not oppressive or improper for a company to actively participate in proceedings concerning, inter alia, the proper construction of its constitution; the conduct and results of meetings; the validity of decisions of its directors; and orders for compulsory acquisition of shares. It is also proper for a company to be heard on relief.

724 The Connective companies point to the following as justification for their legitimate interest in actively participating in and defending the oppression proceeding:

(a) Slea's allegations concern application of the pre-emptive rights provisions of the constitutions of Services and OSN to the restructure of the Connective business and the transaction with Macquarie, and make allegations of fact against Services and OSN to support those allegations;

(b) Slea's allegations concern the conduct of Services and OSN in relation to the restructure, and the application of the pre-emptive rights provisions adopted in the constitution of Group, of which Services is the majority shareholder;

(c) Slea's allegations concern the proper construction of the settlement deed in the Haron proceeding, to which Services and OSN are parties, and the effect of the pre-emptive rights provisions in the context of the transaction contemplated by that deed;

(d) Slea's allegations include that Services and OSN deliberately concealed facts from Slea, and engaged in misleading and deceptive conduct; and

(e) The relief sought by Slea in the oppression and derivative proceedings includes unwinding the restructure and sale, which will affect the rights of the Connective companies.

725 Underlying the more specific doctrinal arguments is the broader, not pleaded, argument that the Connective companies' active participation was justified as the oppression proceeding was, in truth, a vehicle for Liberty to advance its own commercial interests; that is, it was necessary and expedient in the interests of the companies, as a whole, to resist litigation which was being used by Liberty to achieve its commercial ends.

726 Slea identifies two fundamental defects with the Connective companies' defence of their active participation in the oppression proceedings.

727 First, Slea says that there appears to be no real dispute that the case is, in substance, a dispute between Slea on the one hand, and Millsave and Mr Haron, on the other. Mr Haron conceded as much. Counsel for the Connective companies opened on the basis that there was one question to be answered: whether Millsave and Mr Haron buy out Slea, or whether Slea is permitted to buy out Millsave and Mr Haron. Similarly, oppression has in some real sense been conceded by Millsave and Mr Haron, although not formally. Slea points to these opening statements, together with the deed of amendment to the implementation deed between Group and its subsidiaries and AFG, which obliges the Connective companies to use their best endeavours to obtain a buy-out order, notwithstanding that such an order is dependent on a finding that Slea has been oppressed.

728 Secondly, although the Connective companies identified the matters upon which they rely as justifying their participation in the proceedings, they did not in any substantial way address the Court on these topics and, in many respects, simply adopted the position taken by counsel for Millsave and Mr Haron respectively.

729 For example, while the Connective companies point to the original pleaded allegations of oppression against the companies (the non-payment of dividends and the issue of remuneration) to justify their participation, their counsel made closing submissions on those topics totalling only four pages, after counsel for Millsave had already addressed the topic of dividends. In any event, following July 2014, these matters were expressly pleaded as referable to the conduct of Millsave and Mr Haron. A further example is the assertion that claims concerning the application of the pre-emptive rights provisions to the settlement deed in the Haron proceeding justified the Connective companies' involvement. That part of Slea's case is a dispute between Slea, Millsave, and Mr Haron about the individual rights of shareholders. The respective counsel for Millsave and Mr Haron properly addressed this topic, but counsel for the Connective companies did not address it.

730 Other matters identified by the companies as justifying their participation, on a proper reading of authorities such as Power v Ekstein[137] and Trojan Equity,[138] did not, in fact, assist the Connective companies' position.

731 Slea accepted that the Connective companies had a proper role to play in making discovery to supplement the other defendants' discovery, and that it would be proper for the Connective companies to be heard on relief. However, it submits that this does not justify a broader and aggressive role in the proceedings generally.

732 A number of other matters were advanced by Slea as showing that the companies are still acting in the interests of Mr Lees and Mr Haron. First, the Connective companies, instructed by Mr Lees and Mr Haron, are resisting the order sought by Slea that they be repaid millions of dollars by Mr Lees and Mr Haron. Secondly, the Connective companies contend that it was proper for them to defend allegations in respect of the restructure and sale to Macquarie, and concerning consequential relief. Slea characterised this as an extraordinary defence that amounted to Services and OSN permitting company funds to be spent in defence of an action, in circumstances where, if that action is successful, it will bring a significant financial gain to Services and OSN by returning the business to full ownership of those companies.

733 On the subject of the derivative leave proceeding, Slea submitted that the Connective companies had no role to play, save for discovery, and being heard on relief. In that proceeding, the claims are asserted derivatively by Slea on the companies' behalf and are indemnified by it.[139] The fact that the companies would want to be heard on the relief sought by Slea (rescission of the restructure and Macquarie transaction), at a trial of the matter, did not justify their opposition of Slea's derivative leave application and the decision to appeal the judgment granting leave, where the relevant consideration was whether it was in the best interests of the companies that Slea be granted leave. Further, it was not clear why the Connective companies appeared at contested applications - for example, where Slea in the oppression proceeding, and Services and OSN as plaintiffs in the derivative proceeding, sought orders that the oppression and derivative proceedings be heard together.[140]

(i) Participation of the Connective companies in the litigation

734 For the reasons set out below, I am satisfied that the funding of and participation in the oppression and derivative proceedings by Services and OSN has been oppressive. In my view, the extent of the participation by the companies went well beyond merely protecting their discrete interests, with the result that resources of the companies have been expended to support the majority shareholders. This is apparent from matters including, but not limited to: the adoption of a 'litigation strategy' by Group, in connection with Quinn Emanuel, to defend and prosecute proceedings involving Slea, including appearing in all contested hearings in proceedings brought by Slea;[141] the role adopted by counsel for the Connective companies at the commencement of the trial, including opening first, cross-examining Slea's witnesses, and making an open offer on behalf of all defendants; and the extent of the burden borne by the companies in respect of discovery.

735 I formed the view that the companies defended Slea's claims 'in the same way as an ordinary arm's length litigant'.[142] In a sense, this conclusion is unsurprising, as it was the Connective companies' case that Slea was, in fact, a puppet for Liberty; and that Liberty was using the oppression proceeding to advance its own interests. As noted above, however, whatever the directors' personal views may have been, I do not consider that the directors were justified in adopting this position, as it amounted to the directors expending company funds in a dispute concerning the control and ownership of the company.[143]

(ii) Expenditure of the Connective companies in the litigation

736 In line with the statements of principle set out above, the onus is on the Connective companies to satisfy the Court with evidence that it was necessary or expedient, in the interests of the company as a whole, for company funds to have been spent defending the proceedings.